Welcome to our comprehensive 50-State Income Tax Guide, your go-to resource for navigating the intricacies of business tax regulations across the United States. Taxation is a critical aspect of financial planning and compliance for individuals and businesses alike, and understanding this year’s details about the specific tax landscape of each state is essential for making informed decisions.
This guide is designed to provide a detailed overview of the tax policies, rates, exemptions, and key considerations in each of the 50 states, ensuring you have the knowledge needed to navigate the diverse tax structures that exist across the nation. Whether you are a business owner navigating corporate tax obligations or a tax professional staying abreast of state-specific nuances, our guide aims to be your comprehensive companion.
ECONOMIC NEXUS THRESHOLDS
“Establishing Nexus” generally means that a business has a significant presence in a specific state, granting that state the authority to impose taxes. If a business operates and earns income within a state, it might be obligated to pay taxes there, irrespective of formal registration. While physical presence traditionally triggers nexus, states are now adopting economic presence standards, potentially causing many companies to unknowingly have nexus in multiple states.
In 2018, the Supreme Court case South Dakota v. Wayfair significantly altered conventional nexus interpretations. Although the case primarily addressed sales tax obligations, it triggered a paradigm shift in the tax landscape. This decision empowered states to reassess who is subject to taxation when conducting business within their borders, impacting both income and sales tax regulations.
Types of sales tax nexus
Sales tax nexus requirements differ significantly from income tax nexus. While income tax nexus revolves around the business’s operations, such as its registration, headquarters, and marketing locations, sales tax nexus is determined by the buyers’ location. Therefore, selling a product or service to someone in a specific state may establish sales tax nexus even when there is no income tax nexus.
The Supreme Court case mentioned above, South Dakota v. Wayfair, reshaped how states approach sales taxes. It discarded the previous requirement of a physical presence for tax collection, introducing a more nuanced perspective. Justice Anthony Kennedy, in the majority opinion, outlined factors in South Dakota’s law that aimed to alleviate burdens on interstate commerce, including provisions for small sellers. Although not all states uniformly adopted these guidelines, many offer reasonable exemptions, especially for small businesses dealing with sales taxes.
An exception exists for goods delivered from out of state or overseas through a common carrier. However, using drop-shipping or a Fulfillment by Amazon (FBA) service might subject a business to sales tax obligations if the drop shipper has facilities in the state where goods are stored before final delivery. Similarly, having employees or agents in a state can trigger a sales tax obligation. If a business has workers in a state and needs to register for state income tax purposes, it is considered doing business in that state.
Traditionally, only a few states taxed service income for sales tax purposes, notably Hawaii and New Mexico. However, this landscape is evolving as states interpret the implications of South Dakota v. Wayfair, which explicitly addressed taxation on both goods and services.
Sales tax treatment of software is intricate. Originally deemed tangible personal property when sold in stores, software, now often distributed via downloads or subscriptions as Software as a Service (SaaS), falls into gray areas. State rules on taxing SaaS purchases vary, with approximately half of all U.S. states having some form of sales tax on such transactions.
Online marketplaces have faced increased scrutiny post-Wayfair, and often have a sales tax collection obligation for participants in the marketplace. The majority of states now enforce Marketplace Facilitator Sales Tax laws, compelling these platforms to collect and remit sales taxes on behalf of their sellers. The laws often include a very low economic nexus threshold, posing a significant compliance challenge for new marketplaces that must adhere to tax regulations from the outset.
Constitutional Limitations to State Tax Nexus
The U.S. Constitution imposes constraints on a state’s authority to levy taxes, rooted in two clauses: the Due Process Clause found in Amendment XIV, Section 1, and the Dormant Commerce Clause from Article 1, Section 8. Fulfilling the nexus requirement of both clauses is imperative for an out-of-state business to come under the tax jurisdiction of a particular state.
The Due Process Clause, a constitutional safeguard, prevents the government from depriving individuals of life, liberty, or property without adhering to reasonable procedures. For businesses, this protection extends broadly. When applied to businesses, the Due Process Clause nexus is established if a person has minimum contacts with a state, ensuring that legal actions against them align with “traditional notions of fair play and substantial justice.” While physical presence satisfies Due Process Clause nexus, it’s not a strict requirement. Even without a physical presence, nexus is fulfilled if an out-of-state company intentionally targets residents through marketing or offers products or services online to the state’s residents. This broad application poses challenges for eCommerce and SaaS platforms, making virtually all web-based companies susceptible to income tax nexus.
The Commerce Clause in the Constitution empowers the federal government to regulate disputes among states. The Dormant Commerce Clause, an implicit prohibition within the Commerce Clause, prevents states from enacting laws detrimental to interstate business. This clause restricts state taxing authority to avoid undue burdens on interstate commerce. For a state tax to comply with the Dormant Commerce Clause, it must meet four criteria:
The tax is applied to an activity with a substantial nexus with the taxing state.
The tax is fairly apportioned.
The tax does not discriminate against interstate commerce.
The tax is fairly related to services provided by a state.
The “substantial nexus” requirement under the Dormant Commerce Clause is not fulfilled when the only contacts of a vendor of tangible goods with the taxing state are by mail or common carrier. However, in certain cases, the substantial nexus requirement can be overcome by demonstrating “significant economic presence.” The threshold for what constitutes “significant economic presence” varies among states, with some setting it so low that even $1 in sales theoretically creates nexus. These thresholds await meaningful court arguments to establish precedents for states to follow.
There exists a historical exception to nexus requirements, known as PL 86-272, which remains applicable to out-of-state salespeople. This law imposes restrictions on a state’s ability to tax interstate commerce, preventing taxation of an out-of-state corporation’s income if its sole business activities in a state involve the “solicitation of orders” for tangible personal property. This exemption applies when orders are sent outside the state for approval by a head office, and the tangible property is delivered from out of state.
While beneficial for teams of traveling salespeople selling products, this exception has limitations. It doesn’t extend to web-based business models like SaaS, excludes leased property, and doesn’t cover service businesses or revenue from servicing goods sold in the state. However, keep in mind that the exception may not apply if the salesperson is also a director or officer of the company.
What steps can businesses take to comply with sales tax nexus laws?
Businesses can take several steps to comply with sales tax nexus requirements:
Understand Nexus Thresholds: Be aware of the income and sales tax nexus thresholds in each state where you conduct business. Economic nexus rules are often based on sales revenue or transaction volume.
Monitor Sales Activities: Keep track of sales transactions in each state. Use software or tools that can help automate this process and provide real-time information.
Determine Taxable Products/Services: Understand the taxability of your products or services in each state. Some items may be exempt from sales tax.
Register for Sales Tax Permits: Register for a sales tax permit in each state where you meet the economic nexus requirements. This is a prerequisite for collecting and remitting sales tax.
Collect Sales Tax: Once registered, collect the appropriate sales tax on taxable sales. This may involve charging customers at the time of sale or using destination-based or origin-based sales tax rates.
File Regular Sales Tax Returns: File sales tax returns regularly, following the schedule set by each state. Even if there are no sales, some states may require a “zero return” to maintain compliance.
Use Sales Tax Software: Invest in sales tax automation software. These tools can help calculate the correct sales tax rates, keep up with changing rates, and generate reports for filing returns.
Train Staff: Train your staff, especially those involved in sales and finance, about the importance of sales tax compliance and the specific requirements in each state.
Audit Compliance Regularly: Conduct at least an annual internal audit to ensure ongoing compliance with sales tax laws. This can help identify and rectify any issues before they become significant problems. You can schedule a call with Optic Tax to get a third-party sales tax review.
How state corporate income tax rates work
State income tax rates vary widely across the United States, as each state has its own tax system and sets its own rates. Here’s an overview of how state income tax rates generally work:
Progressive or Flat Tax: States can have either a progressive or flat income tax rate structure. In a progressive system, higher-income individuals pay a higher percentage of their income in taxes. In a flat tax system, everyone pays the same percentage, regardless of income.
Income Types: Sometimes active income such as earnings from a business are taxed differently than passive income, such as interest income or dividend income.
Tax Brackets: In states with a progressive income tax, different income levels are subject to different tax rates. These income ranges, or brackets, determine the rate at which income is taxed. Higher incomes typically face higher tax owed.
Marginal Tax Rates: State income tax rates are often marginal, meaning that different portions of income are taxed at different rates. The marginal tax rate is the rate applied to the last dollar earned.
Credits and Deductions: States often provide tax credits and deductions for specific activities or expenses, such as education expenses, homeownership, or energy-efficient improvements. Taxpayers can reduce their tax liability by claiming these credits and deductions.
Non-Resident Taxation: States generally tax the income of residents, but some also tax the income earned by non-residents or foreign corporations operating within the state.
Tax-Free States: Some states do not impose a corporate income tax. These states include Alaska, Nevada, South Dakota, Texas, and Wyoming.
State Tax Forms and Filing Deadlines: Each state has its own tax forms and filing deadlines. Taxpayers are required to file their state income tax returns by the specified deadline to avoid penalties.
It’s important for business owners to be aware of the specific rules and rates in the state where they reside or earn income. These rules can change so rapidly, and state tax departments are notoriously bad about not sharing the nature of changes until publishing the tax forms the following year.
How does state tax compare with federal income tax?
Federal income taxes, administered by the Internal Revenue Service (IRS), are uniform taxes across all U.S. states and territories. Operating on a progressive system, it features varying tax brackets with rates increasing as income rises.
States, however, have their own taxing authorities, leading to diverse state tax structures. States can set their income tax rates and brackets, and their rules for calculating taxable income, exemptions, and deductions may differ from federal guidelines. And some localities within a state even assess local income taxes, such as the City of Los Angeles Business Tax or the New York City income tax.
Both federal and state governments impose various taxes, but states also have the flexibility to levy sales taxes, property taxes, and specific industry-related taxes. While federal tax provisions include nationwide exemptions and deductions, states may introduce unique incentives.
Taxpayers file separate state returns, reflecting the distinct compliance requirements and deadlines of each jurisdiction. Ultimately, revenue from federal taxes supports national programs, while state taxes contribute to state-specific initiatives, including education, infrastructure, and services. Understanding these variations is essential for comprehensive financial planning.
States with no income taxes
Several U.S. states do not impose a state income tax. These states are often referred to as “no-tax” states. But here are some states that historically have no state income tax:
Alaska: Alaska does not have a state income tax.
Florida: Florida does not impose a state income tax for individuals, but there is a state income tax for corporations.
Nevada: Nevada does not have a state income tax.
South Dakota: South Dakota does not impose a state income tax.
Texas: Texas does not have a state income tax for individuals or businesses, but there is a franchise tax that requires a business filing and taxes some businesses.
Washington: Washington does not impose an individual income tax, however businesses are subject to a business and occupation (B&O) and/or public utility tax.
Wyoming: Wyoming does not have a state personal or corporate income tax.
Please note that even in states without a state income tax, other taxes such as sales tax and property tax may still apply. Often it actually surprises new residents who think they are moving for lower tax, but their overall tax is higher. For example, I have had many clients reach out to me who moved to Texas for no state income tax and then are shocked to see how high their property tax bill is!
States with flat income tax rates
Several U.S. states impose a flat income tax rate, meaning that all businesses, regardless of their income level, pay the same percentage of their income in state income taxes.
Alabama: 6.5%
California: 8.84%
Colorado: 4.4%.
Connecticut: 7.5%
Delaware: 8.7%
Florida: 5.5%
Georgia: 5.75%
Idaho: 5.8%
Illinois: 7%.
Indiana: 4.9%.
Kentucky: 5%.
Michigan: 6%.
Minnesota: 9.8%.
Missouri: 4%
New Hampshire: 7.5%
North Carolina: 2.5%
Ohio: 0.26% (Gross)
Oklahoma: 4%
Pennsylvania: 8.49%.
Rhode Island: 7%
South Carolina: 5%
Tennessee: 6.5%
Utah: 4.65%
West Virginia: 6.5%
Wisconsin: 7.9%
States with no Sales Tax
Sales taxes are very popular in the US, only five U.S. states do not impose a state sales tax. The states with no state sales tax are:
Alaska: Alaska does not have a statewide sales tax. However, local jurisdictions (cities and boroughs) in Alaska may impose their own sales taxes.
Delaware: Delaware does not impose a state sales tax.
Montana: Montana does not have a general state sales tax. However, it does allow localities to impose a local option sales tax.
New Hampshire: New Hampshire does not have a general state sales tax. However, it does tax meals, rooms, and vehicle rentals.
Oregon: Oregon does not impose a state sales tax.
State and local governments often change sales tax nexus laws and tax rates frequently and without publishing the information widely, thus this can change rapidly and an annual review of sales tax compliance and risks is always advisable.
2024 state income tax rates and brackets
1. Alabama
Alabama has a 6.5% corporate income tax rate and no minimum tax, understanding filing requirements is essential. Nexus triggers include property, payroll taxes paid, or sales thresholds. Employee presence triggers income tax nexus. Alabama offers various tax credits, from job creation to historic structures rehabilitation.
Alabama’s 4% sales tax rate can vary locally, reaching a combined 11.5%. Sales tax nexus is economically triggered, applying when retail sales exceed $250,000. Most services are exempt sales, but SaaS and software are generally taxable, following a 2019 Alabama Supreme Court ruling.
For more information on Alabama State Tax view our full guide here.
2. Alaska
Alaska distinguishes itself in the U.S. with no state-level income tax or statewide sales tax, offering a business-friendly environment. The corporate income tax rate is 0%, and there are no income tax credits available. While there is no state income tax nexus, businesses should consider state payroll tax obligations.
Alaska doesn’t impose a statewide sales tax, but local jurisdictions may have their own rates, capped at 7.5%. Sales tax nexus triggers include Alaska retail sales exceeding $100,000 or over 200 transactions. Sales tax includes gross sales of goods, property, services, and marketplace sales. Local taxation of SaaS may vary by jurisdiction.
For more information on Alaska State Tax view our full guide here.
3. Arizona
Arizona, with its diverse landscapes and dynamic cities, imposes various taxes on businesses, including a flat corporate income tax rate of 4.9%. There’s no corporate minimum tax, but a $50 annual filing fee is required. State income tax nexus can be triggered by factors like physical presence, economic factors, remote employees, affiliate or agent nexus, and ownership of property. Arizona offers state income tax credits for activities like research and development and job training.
The state sales tax rate is 5.6%, and businesses must be aware of factors triggering sales tax nexus requirements. Services are generally not taxed, but exceptions exist, including SaaS, which is taxable.
For more information on Arizona State Tax view our full guide here.
4. Arkansas
Arkansas imposes diverse taxes, including the highest franchise tax rate nationally at 0.3% of a business’s net worth. The corporate income tax rate ranges from 1% to 5.9%, with a $300 corporate minimum tax. Income tax nexus is triggered by factors like physical presence, employees, sales thresholds, property ownership, and economic presence. State income tax credits are available for job creation, industry-specific investment, research and development, and energy efficiency.
The sales tax rate is 6.5%, but the combined maximum rate, including local components, can reach 12.63%. Sales tax nexus is established through physical or economic presence. Taxable transactions include retail sales, certain services, digital goods, and tangible personal property, while groceries and prescription medications are exempt. Services are generally not taxed, but Software as a Service (SaaS) is taxable.
For more information on Arkansas State Tax view our full guide here.
5. California
In California, businesses face an 8.84% corporate income tax rate, with a $800 minimum franchise tax due each first quarter. Physical presence, employees, or economic moves trigger state income tax obligations.
The 7.25% baseline sales tax, reaching 10.25% with local variations, adds a twist. Tangible personal property sales, leases, and rentals are taxable, while exclusions include groceries and prescription medications. California generally exempts SaaS from sales tax, considering it non-tangible personal property. Downloadable prewritten software also avoids taxation, provided it doesn’t involve tangible property transfer.
For more information on California State Tax view our full guide here.
6. Colorado
Colorado’s business tax environment can be intricate, demanding a clear understanding for entrepreneurs and business owners. Key aspects include a flat 4.55% corporate income tax rate, a use tax addressing out-of-state purchases, and valuable tax credits such as R&D and Enterprise Zone Investment Tax Credits. The significance of tax nexus is highlighted, particularly for remote sellers exceeding the $100,000 sales threshold.
Obtaining a Colorado Sales Tax License is a crucial step for businesses, involving an application process with associated costs. Compliance maintenance, including license renewal, updates, and consistent filing, is emphasized to avoid penalties. Local sales tax nuances, especially in over 70 home-rule cities, require careful navigation due to varying regulations.
For more information on Colorado State Tax view our full guide here.
7. Connecticut
Connecticut’s corporate tax landscape encompasses various taxes affecting businesses, with a focus on the corporate income tax. The corporate tax rate is 7.5%, with a surtax of 10% for corporations with income exceeding $100 million. Additionally, a capital base tax of 0.31% applies to the apportioned capital base. Understanding net operating losses, gross receipts, and available deductions and credits is crucial for accurate tax liability calculation.
Sales taxes are a significant part of corporate responsibilities in Connecticut, with a 6.35% rate on retail sales, leases, or rentals. The state has passed economic nexus legislation, taxing out-of-state businesses engaged in significant economic activities within Connecticut. Certain services and Software as a Service (SaaS) products are taxable, requiring businesses to collect and remit sales tax.
For more information on Connecticut State Tax view our full guide here.
8. Delaware
Delaware, often hailed as the corporate capital of the United States, is renowned for its favorable tax conditions that attract businesses of all sizes. Delaware is often misunderstood as being a tax-free state. While there is no sales tax, there is both a corporate income tax and a franchise tax in Delaware.
Delaware imposes a corporate income tax rate of 8.7% on any corporation, whether domestic or foreign, conducting business in the state. To establish state income tax nexus in Delaware, businesses must consider various factors, including real and personal property ownership, right to use property, tangible personal property use, mailing address and telephone presence, and other relevant criteria.
Delaware imposes an annual franchise tax on entities that have filed a Certificate of Incorporation or Formation in the state, acting as a fee for the privilege of conducting business in Delaware. The Delaware Franchise Tax (DEFT) varies for LLCs and corporations. LLCs have a straightforward flat-rate DEFT of $300, payable by June 1st annually, without an annual report requirement. Corporations, however, experience a more intricate filing process with tax rates ranging from $175 to $250,000.
Problems with DEFT commonly arise when shares are unissued or only a fraction is allocated, leading to unexpectedly high tax bills, especially in cases of steep vesting arrangements. It is crucial for businesses to understand these calculation methods and address potential pitfalls for effective franchise tax planning in Delaware.
For more information on Delaware State Tax view our full guide here.
9. Florida
Florida’s business tax landscape, often associated with being income tax-free, does have a 5.5% corporate income tax for C corporations, with an initial exemption for the first $50,000 in income. Limited liability companies (LLCs), sole proprietorships, and S corporations are exempt, unless an LLC elects C-corporation taxation federally.
Florida lacks a corporate minimum tax, and the annual income tax return deadline varies based on the corporation’s tax year. Nexus is triggered by various factors, including having employees or contractors in Florida.
The prevailing sales tax rate is 6%, potentially reaching 8% with local jurisdictions. Florida does not tax Software-as-a-Service (SaaS), offering clarity through Technical Assistance Advisements.
For more information on Florida State Tax view our full guide here.
10. Georgia
Georgia’s corporate income tax landscape is characterized by a 5.75% rate applied to taxable net income for corporations, with S Corporations shifting the tax burden to shareholders. Corporations may also face a net worth tax, but those with a net worth of $100,000 or less are exempt.
The state’s sales tax rate is 4%, potentially reaching 9% with local taxes. Economic nexus criteria require businesses to reach $100,000 in sales or 200 transactions. Taxable transactions include retail sales, leases, digital goods, accommodations, admissions, and specific services.
Amazon FBA sellers storing goods in Georgia may trigger sales tax nexus. Exemptions from sales tax encompass certain food items, prescription medications, and many services. Notably, Software as a Service (SaaS) is presently excluded from taxable products under Georgia’s sales tax regulations as of January 1, 2024.
For more information on Georgia State Tax view our full guide here.
11. Hawaii
Hawaii imposes a corporate income tax on the net income of businesses operating within the state. The tax rate varies, and corporations must file returns by specific deadlines. Corporate income tax nexus is triggered by factors like business activities, property ownership, or income generation in Hawaii.
Additionally, Hawaii levies the General Excise Tax (GET) on various business transactions. Understanding GET rates and exemptions is essential. State income tax credits are available for eligible businesses. Businesses offering Software as a Service (SaaS) in Hawaii should be aware of the tax implications under GET.
For more information on Hawaii State Tax view our full guide here.
12. Idaho
The Idaho corporate income tax rate has decreased over the years and currently stands at 5.8%. There is no corporate minimum tax, but most businesses are required to pay the $10 Personal Property Tax Replacement Benefit Fee (PBF). The state income tax return is due by April 15th, following the federal deadline. Income tax nexus is triggered in Idaho through various conditions, such as conducting business in the state or having income attributable to Idaho.
The sales tax rate in Idaho is 6%, and sellers may need a permit based on triggers like sales into Idaho or having others sell on their behalf in the state. Sales tax applies to retail sales, leases, rentals, digital content, short-term rental accommodations, and certain services, while Software-as-a-Service (SaaS) is typically exempt from sales tax in Idaho.
For more information on Idaho State Tax view our full guide here.
13. Illinois
The prevailing corporate income tax rate in Illinois is a flat 7 percent of net income, applying universally to corporations regardless of size or industry. Taxable income is determined by multiplying net income by a flat rate based on federal adjusted gross income, with exemptions and deductions playing a significant role in reducing tax liability.
Sales tax is businesses operating in Illinois, with a 6.25% rate for general merchandise and 1% for qualifying food, drugs, and medical appliances. Local rates vary, impacting the total sales tax rate, and must be electronically filed through MyTax Illinois.
For more information on Illinois State Tax view our full guide here.
14. Indiana
In Indiana, the corporate income tax rate has stabilized at 4.9% since July 1, 2021, following a gradual decrease. Indiana’s income tax nexus is rooted in economic presence, requiring businesses to file if engaged in various activities within the state.
Indiana imposes a statewide sales tax rate of 7%, with no local sales taxes. Sales tax nexus is triggered for sellers based on gross revenue or transaction volume into Indiana. Generally, services are exempt unless involving tangible product creation. Software-as-a-Service (SaaS) is not taxable for sales tax in Indiana, given the state’s definition of SaaS as a hosted online service without requiring software download.
For more information on Indiana State Tax view our full guide here.
15. Iowa
In Iowa, corporate income tax rates, effective from January 1, 2024, range from 5.5% to 7.1%, with a potential reduction outlined in House File 2317 if net corporate income tax receipts exceed $700 million. Corporate income tax nexus includes sellers of tangible property, service providers, transportation companies, and those dealing with intangibles.
The state imposes a 6% statewide sales tax, with an additional 1-2% for local options. Sales tax nexus considers physical or economic presence, with remote sellers required to collect tax if gross revenue from Iowa sales exceeds $100,000. Taxable transactions include retail sales, services, leases, rentals, and digital products, while exemptions apply to certain items. Software-as-a-Service (SaaS) is taxable, but exemptions exist for sales to certified enterprises or use in exempt manufacturing activities, facilitated by the Sales/Use/Excise Tax Exemption Certificate.
For more information on Iowa State Tax view our full guide here.
16. Kansas
Kansas imposes a corporate income tax of 4% on net income for corporations operating solely within the state, with an additional 3% surtax on net income exceeding $50,000. Corporations with operations both within and outside Kansas determine tax liability using a three-factor formula, considering the proportion of sales, property, and payroll in Kansas relative to total figures.
Kansas maintains a state sales tax rate of 6.50%, with a maximum additional local rate of 4.25%. Sales tax nexus in Kansas is established through physical presence, and out-of-state sellers can create nexus through affiliate connections or click-through agreements. Services are generally not taxed in Kansas, and Software-as-a-Service (SaaS) is generally not subject to sales tax in Kansas.
For more information on Kansas State Tax view our full guide here.
17. Kentucky
Kentucky imposes a flat 5% corporate tax rate, and understanding business taxes involves navigating the apportionment process for Corporate Income Tax and Limited Liability Entity Tax (LLET). There is a minimum tax of $175 for LLCs and Corporations filing taxes in Kentucky. State income tax nexus is triggered in Kentucky based on business activities, with regulations outlining criteria, procedures, and exemptions. Having an employee or contractor in Kentucky can trigger nexus.
Kentucky maintains a 6% state sales tax rate with specific triggers for nexus, including affiliate and economic nexus rules, inventory in the state, and marketplace sales. Sales tax in Kentucky traditionally exempts services, but recent changes expand the tax base to include high-growth services. Additionally, starting January 1, 2023, Kentucky imposes sales tax on “prewritten computer software access services,” likely covering Software-as-a-Service (SaaS). This amendment defines taxable services as the right to access prewritten computer software, whether hosted in the “cloud” or on the retailer’s servers.
For more information on Kentucky State Tax view our full guide here.
18. Louisiana
Louisiana’s corporate income tax rate is tiered based on net income, ranging from 3.5% on the initial $50,000 to 7.5% on amounts exceeding $150,000. Subchapter S Corporations and pass-through entities under the Pass-through Entity Tax Election follow a different structure, with rates ranging from 1.85% to 4.25%. There is no minimum income tax, but a minimum franchise tax applies. Louisiana determines income tax nexus through an economic presence standard, considering out-of-state corporations actively engaging in the state’s economic market.
Louisiana’s sales tax rate is 4.45%, with potential additional local taxes, bringing the total to 11.45%. Sales tax nexus can be established through physical or economic presence. Remote sellers and Direct Marketers are classifications for those without physical presence. Remote Retailers must adhere to dual reporting requirements, while Direct Marketers can voluntarily collect at an 8.45% rate. Services are generally not taxable in Louisiana, and the taxability of Software-as-a-Service (SaaS) is currently under review, with a temporary suspension of the bulletin declaring its taxability.
For more information on Louisiana State Tax view our full guide here.
19. Maine
Maine imposes a graduated income tax on corporate entities with Maine-source income, ranging from 3.5% to 8.93%. Certain entities, including S corporations and those subject to franchise or premiums tax, are generally exempt. Maine’s three factor presence determines nexus based on property, payroll, and sales.
Maine imposes a state sales tax rate of 5.50%, with no local sales taxes. Individuals or businesses selling tangible personal property, products transferred electronically, or taxable services for delivery into Maine must collect and remit sales tax. Thresholds include at least 200 transactions or gross revenues exceeding $100,000.Maine likely exempts Software-as-a-Service (SaaS) from sales tax, especially if not downloaded.
For more information on Maine State Tax view our full guide here.
20. Maryland
Maryland’s corporate income tax rate stands at 8.25%, applied to Maryland taxable income, which is derived by adjusting federal taxable income. While there is no corporate minimum tax, all Maryland corporations are required to file annually, regardless of their taxable income or activity status. Nexus for Maryland corporate income tax is established when a corporation engages in various in-state activities, such as maintaining a business location, owning or using property, employing individuals for solicitation, product installation, inventory storage, and more.
The state imposes a 6.00% sales tax rate with no local sales taxes. Sales tax nexus is triggered by maintaining a place of business, using agents, regularly providing services or repair, using vehicles for sales or delivery, or meeting specific sales thresholds. Generally, charges for services are exempt from Maryland sales tax, with specific exceptions for taxable services. Maryland exempted SaaS from sales tax in 2022, excluding enterprise-level computer software and SaaS from taxation.
For more information on Maryland State Tax view our full guide here.
21. Massachusetts
The Massachusetts corporate excise tax involves an 8.00% tax on state-attributable income and a tax on tangible personal property or net worth for traditional corporations. There is a corporate minimum excise tax of $456. Nexus for corporate income tax is established through physical presence, solicitation, retail market exploitation, delivery or services, business privilege, and other criteria.
The sales tax rate is 6.25%, covering tangible personal property, certain services, and utilities. Sales tax nexus is triggered by various factors, including physical presence, employee presence, and economic nexus. The taxation of Software as a Service (SaaS) depends on whether it is prewritten or custom software. Prewritten software is generally taxable, while custom software is exempt.
For more information on Massachusetts State Tax view our full guide here.
22. Michigan
Michigan’s tax landscape is characterized by a 6% corporate income tax applied to both C corporations and entities taxed as corporations federally. Notably, the Small Business Alternative Credit offers an alternative tax rate of 1.8% on adjusted business income, with variations for insurance companies and financial institutions. Taxpayers are exempt from filing if their gross receipts are below $350,000 or if their annual liability is $100 or less, except for financial institutions and insurance companies. Establishing nexus with Michigan involves physical presence, active solicitation with gross receipts, or ownership/beneficial interest in a flow-through entity with substantial nexus.
Michigan’s sales tax structure stands out for its absence of city, local, or county sales tax, relying solely on a 6% state sales tax rate. Sales tax nexus for remote sellers is established when gross sales surpass $100,000 or when conducting 200 or more transactions in the previous calendar year. Notably, Michigan does not specifically define Software-as-a-Service (SaaS) as taxable; instead, taxability hinges on whether the SaaS falls within the state’s definition of taxable prewritten computer software.
For more information on Michigan State Tax view our full guide here.
23. Minnesota
Minnesota currently has the highest corporate tax rate in the United States at 9.8%, surpassing New Jersey’s former rate of 9% as of January 1. State income tax nexus in Minnesota is triggered by physical or economic presence. Physical presence includes locations, representatives, and property in the state. Economic presence applies to remote sellers meeting specific criteria.
Minnesota imposes a 6.875% state sales tax rate with a maximum local rate of 2.00%. Sales tax nexus is triggered for remote sellers meeting specific sales or transaction thresholds.SaaS is not taxable for sales tax in Minnesota. The provision of a computer on a time-sharing basis and SaaS accessed via the Internet are considered non-taxable services, provided certain conditions are met.
For more information on Minnesota State Tax view our full guide here.
24. Mississippi
Mississippi’s corporate income tax structure employs a progressive system, exempting the first $5,000 of taxable income and applying a 4% tax rate to the subsequent $5,000, with a 5% tax rate on income exceeding $10,000. State income tax nexus in Mississippi is triggered by engaging in any profit-driven enterprise within the state, determined through property, payroll, and sales factors.
Mississippi’s sales tax rates vary, with a general rate of 7% for retail sales of tangible personal property. Sales tax nexus is triggered for sellers without physical presence but a significant economic presence (sales over $250,000) in Mississippi. While services are generally not taxable, labor related to the sale and installation of tangible personal property falls under taxable categories. Moreover, Mississippi taxes “computer software sales and services,” but exempts software transmitted out of state for initial use.
For more information on Mississippi State Tax view our full guide here.
25. Missouri
Missouri’s corporate income tax is a 4 percent levy on a corporation’s earnings based on Federal Taxable Income from the federal tax return. Missouri imposes income tax nexus if a corporation earns $100 or more from sources within the state. Having an employee or contractor in Missouri triggers nexus for income tax.
Missouri has a 4.225 percent state sales tax rate, with a maximum local sales tax rate of 5.763 percent. Sales tax nexus is triggered for remote sellers or marketplace facilitators selling tangible personal property into Missouri if gross receipts from taxable sales exceed $100,000 in a calendar year. Most services are not subject to sales tax unless specifically mentioned in the state’s tax laws. Software-as-a-Service (SaaS) income is not taxable for sales tax purposes, but sales tax must be paid on any tangible personal property used to provide the service.
For more information on Missouri State Tax view our full guide here.
26. Montana
The corporate income tax rate in Montana is 6.75%, with an option for a water’s-edge election that allows corporations to report income solely from the United States and specific tax havens, subjecting them to a 7% local income tax rate. There is a corporate minimum tax of $50, and Montana corporate tax returns are due on the 15th day of the 5th month after the tax year ends, with an automatic extension option.
Montana follows an economic presence nexus standard for income tax, and various corporate income tax credits are available, including those for alternative energy systems, coal gasification facilities, research and development, recycling equipment, and more. Montana does not have a state sales tax, maintaining a 0% sales tax rate.
For more information on Montana State Tax view our full guide here.
27. Nebraska
In Nebraska, the corporate income tax rate is divided into two categories: 5.58% and 7.81%, with the higher rate applying to income exceeding $50,000. Nebraska enforces income tax nexus based on revenue generated from Nebraska sources, and certain entities, like S corporations, financial institutions, and those protected under the salesperson exception, may be exempt.
Nebraska’s sales tax rate ranges from 5.5% to 7.5% in 2024, depending on the specific location. Sales tax nexus is triggered for remote sellers and marketplace facilitators with over $100,000 in Nebraska retail sales or 200 or more Nebraska sales transactions in the previous or ongoing calendar year. Services are generally not taxed, except for specific categories. Software-as-a-Service (SaaS) is not explicitly taxed for sales tax purposes in Nebraska.
For more information on Nebraska State Tax view our full guide here.
28. Nevada
Nevada’s business tax landscape is distinctive, marked by the absence of individual and corporate income taxes. Instead, the state enforces the Commerce Tax, an annual tax affecting businesses with gross revenues over $4,000,000. The Commerce Tax return is due 45 days after the fiscal year’s end, with the deadline for the 2023-2024 period set for August 14, 2024.
Nevada also maintains a 6.85 percent state sales tax rate, complemented by a maximum local sales tax rate of 1.53 percent. Sales tax nexus is triggered for remote sellers exceeding $100,000 in retail sales or conducting 200 or more transactions in Nevada.
While most services are not taxed, some may incur sales tax if integral to tangible personal property transactions. Notably, Software-as-a-Service (SaaS) remains exempt from sales tax in Nevada, aligning with the state’s classification of electronically delivered software as non-tangible personal property.
For more information on Nevada State Tax view our full guide here.
29. New Hampshire
New Hampshire does not have a personal income tax but has a Business Profits Tax (BPT) for corporations. As of December 31, 2023, a 7.5% tax applies to income from in-state business activities.
Entities earning gross business profits both within and outside the state must apportion using the single sales factor. Partnership and S-corporation treatment align with C-corporations. The BPT nexus includes various business activities, such as repairs, facility ownership, and order approval. Independent contractors can trigger nexus based on their activities.
New Hampshire does not have a sales tax, including local sales taxes.
For more information on New Hampshire State Tax view our full guide here.
30. New Jersey
Understanding the corporate tax landscape in New Jersey is crucial for streamlined business planning. The state imposes the Corporation Business Tax (CBT) on both domestic and foreign corporations, with rates varying based on net income. For incomes up to $50,000, the tax rate is 6.5%, while incomes between $50,000 and $100,000 are taxed at 7.5%, and incomes above $100,000 face a 9% tax rate.
New Jersey has a flat sales tax rate of 6.625% and no local sales taxes. Certain services, like telecommunications, landscaping, and digital services, are subject to sales tax. Software as a Service (SaaS) is taxable in New Jersey, and providers must collect and remit sales tax.
For more information on New Jersey State Tax view our full guide here.
31. New Mexico
New Mexico’s corporate income tax rate is structured with a 4.8% rate for net income not exceeding $500,000, and for income surpassing $500,000, a calculation of $24,000 plus 5.9% of the excess. There is also a corporate minimum tax in the form of a $50 Franchise Tax, applicable even if a corporation is not actively conducting business in the state. For corporations to establish state income tax nexus in New Mexico, engagement in business transactions within the state or deriving income from property or employment within the state is required.
New Mexico utilizes a gross receipts tax system instead of a traditional sales tax, with rates ranging from 5.125% to 8.8675%, depending on the business location. The state allows for the establishment of gross receipts tax nexus through both physical and economic factors.
Regarding the taxation of services, the majority are subject to gross receipts tax in New Mexico, including those provided by independent contractors. Software-as-a-Service (SaaS) is also taxable, and careful consideration is advised for the handling of user licenses, as it may involve additional property tax liability for end-users.
For more information on New Mexico State Tax view our full guide here.
32. New York
New York boasts one of the highest corporate tax rates in the nation, contributing over $8 billion in corporate taxes in 2021. The Corporate Franchise Tax Rate, is 7.25% in 2024, with a minimum taxable income tax rate of 1.5%. There is a Fixed Dollar Minimum (FDM) tax, ranging from $25 to $200,000, ensures a baseline tax contribution irrespective of net income. Additionally, there is an Unincorporated Business Tax (UBT) that applies to entities like partnerships and LLCs, with a 4% rate on taxable income allocated to New York City.
Operating within New York City adds another layer, with the General Corporation Tax (GCT) and Business Corporation Tax (BCT) rates at 8.85%. Potential double taxation arises as businesses are subject to both state corporate franchise tax and city GCT. While a tax credit for GCT is offered to offset the state’s corporate franchise tax, careful planning is crucial to mitigate double taxation.
Sales tax implications in New York demand attention, with general rates at 4% statewide, reaching 8.875% in New York City. The Metropolitan Commuter Transportation Mobility Tax (MCTMT) impacts businesses in the Metropolitan Commuter Transportation District, with recent rate adjustments affecting employers and self-employed individuals.
For more information on New York State Tax view our full guide here.
33. North Carolina
In North Carolina, the corporate income tax rate currently stands at 2.5%, with a planned reduction to reach 0% by 2030. This reduction is phased, starting with a decrease to 2.25% in the 2025 tax year, followed by further reductions to 2% for 2026 and 2027, and finally, 1% for 2028 and 2029. Corporations, both C-Corporations and S-Corporations, operating in the state are subject to a minimum Franchise Tax of $200. Nexus for state income tax is triggered for all active and inactive domestic corporations and foreign corporations doing business in the state, unless exempt.
The sales tax rate in North Carolina is currently 4.75%, with the potential to reach 7.5% in local municipalities. Sales tax nexus is triggered for remote sellers with gross sales exceeding $100,000 or engaging in 200 or more transactions in North Carolina. Most services are not taxed, except for repair, maintenance, and installation services. Notably, Software-as-a-Service (SaaS) is generally not taxable for sales tax purposes in North Carolina.
For more information on North Carolina State Tax view our full guide here.
34. North Dakota
The North Dakota Corporate Income Tax rate spans from 1.41% to 4.31% based on North Dakota taxable income, using a three-factor apportionment formula. Notably, entities like partnerships, S corporations, and LLCs pass their profits or losses to owners, exempting them from income tax at the entity level. Nexus is triggered by physical presence, adhering to the Multistate Tax Commission’s nexus statement.
The North Dakota Sales Tax Rate is 5.00%, with potential local rates up to 3.50%. Sales tax nexus can be established through economic activity, inventory storage, marketplace sales, and participation in trade shows. Most services, including professional services, are not taxed. While North Dakota likely does not tax Software-as-a-Service (SaaS), it does tax computer software.
For more information on North Dakota State Tax view our full guide here.
35. Ohio
In Ohio, the business tax landscape is distinctive, primarily shaped by the Commercial Activity Tax (CAT), a type of gross receipts tax. The CAT taxes businesses based on gross receipts rather than profits, with a recent exemption for businesses with taxable gross receipts of $3 million or less per calendar year, providing relief for small businesses.
S corporations pay the CAT, while individual shareholders owe tax on their share of the company’s income. Pass-through entities have the option to participate in the Electing Pass-Through Entity Tax (EPTE).
Ohio imposes a state sales and use tax rate of 5.75%, with additional local sales taxes. Businesses, including out-of-state ones with substantial nexus, must collect and remit these taxes.
For more information on Ohio State Tax view our full guide here.
36. Oklahoma
The corporate income tax rate in Oklahoma is 4% of taxable income, with obligations for declaration and estimated tax payments for entities expecting a liability of $500 or more. Nexus triggering activities for state income tax include maintaining a business location, owning real estate, having employees or representatives conducting various activities, and engaging in specific transactions within the state.
The sales tax rate is 4.5%, potentially reaching 11.5% depending on local municipalities. Sales tax nexus for remote sellers has a small seller exception for aggregate sales under $100,000 in the previous 12 months. Services are generally not subject to sales tax in Oklahoma, but if a service involves creating a product for sale, sales tax may apply. Software-as-a-Service (SaaS) is not taxable for sales tax in Oklahoma, as it falls outside the specified taxable services.
For more information on Oklahoma State Tax view our full guide here.
37. Oregon
C corporations in Oregon are taxed at a rate of 6.6% for amounts up to $1 million and 7.6% for amounts exceeding $1 million. For businesses with $500,000 or less in income, a $150 minimum tax applies.
Oregon establishes state income tax nexus if a company receives benefits from business activities within the state. Nexus-triggering activities include having a physical presence, property ownership, shipping goods, financial interests, and engaging employees or representatives in various activities within Oregon.
Notably, Oregon does not have a state sales tax, and no local sales taxes are imposed.
For more information on Oregon State Tax view our full guide here.
38. Pennsylvania
Pennsylvania C corporations are subject to a flat 8.49% Corporate Net Income Tax (CNIT), while S corporations and LLCs fall under the Personal Income Tax. Compliance includes electronic filing mandates and estimated tax payments for corporations expecting $800 or more in tax.
Sales and Use Tax, standing at 6%, applies to various transactions, necessitating meticulous processes such as timely filings, accurate tax collection, and remittance. Local Sales Taxes vary, with Allegheny County and Philadelphia imposing additional rates of 1% and 2%, respectively.
Out-of-state sellers engaging in Pennsylvania activities must navigate sales tax nexus triggered by physical presence or exceeding a $100,000 annual sales threshold. Transient Vendor Licenses are required for certain non-Pennsylvania businesses participating in events or selling taxable items in the state.
For more information on Pennsylvania State Tax view our full guide here.
39. Rhode Island
Rhode Island’s corporate income tax system entails a 7% tax rate applied to taxable income generated within the state. All corporations involved in Rhode Island business activities are mandated to pay a minimum tax of $400. Regarding state income tax nexus, foreign corporations conducting business in Rhode Island are subject to corporate income tax if they have apportionable income within the state.
In terms of sales tax, Rhode Island imposes a 7.00% rate with no additional local sales taxes. Nexus is triggered if businesses engage in economic activities resulting in annual sales of $100,000 or 200 separate transactions. Taxable transactions encompass sales of tangible personal property and certain services.
While most services are not taxed, exceptions include telecommunications and cable television services. Furthermore, Rhode Island subjects Software as a Service (SaaS) and various digital goods and services to sales tax, necessitating businesses to comply with state regulations by collecting and remitting sales tax.
For more information on Rhode Island State Tax view our full guide here.
40. South Carolina
C Corporations in South Carolina are subject to a 5% Corporate Income Tax on their in-state taxable income. Additionally, C Corporations must pay an annual License Fee of 0.1% of capital and paid-in surplus, along with a fixed $15. The fee cannot fall below $25 and must be settled by the original due date for tax returns.
Sales Tax in South Carolina is 6%, with an additional 1% local tax if approved by voters. Economic nexus for remote sellers is triggered when gross revenue from sales into South Carolina exceeds $100,000.
Services are generally not taxable, except for specific cases like admissions, accommodations, dry cleaning, electricity, and certain communication services. Software as a Service (SaaS) is considered taxable based on its resemblance to taxable database access transmissions, as ruled in a state revenue ruling.
For more information on South Carolina State Tax view our full guide here.
41. South Dakota
While South Dakota does not have a corporate income tax, South Dakota is quite aggressive in enforcing a state sales and use tax rate of 4.2%, with additional local taxes of up to 2% depending on the activity and location of the sale.
South Dakota requires remote sellers with gross revenue exceeding $100,000 from sales into the state to collect sales tax. South Dakota taxes a broad range of personal services, including professional services and training. Digital services, such as Software as a Service (SaaS), software downloads, eBooks, and other digital downloads, are also subject to sales tax in the state.
For more information on South Dakota State Tax view our full guide here.
42. Tennessee
Tennessee, often lauded for being an income tax-free state, does impose a 6.5 percent business excise tax, functioning similarly to an income tax. The excise tax is contingent on the net earnings or income for the tax year.
Additionally, a franchise tax is levied on corporations, limited partnerships, limited liability companies, or business trusts conducting activities in the state. The franchise tax is computed based on the higher value between net worth and the book value of real and tangible personal property in Tennessee, with a rate of 0.25%. A minimum franchise tax of $100 is mandated for entities, regardless of activity status.
The statewide sales tax rate is 7%, with additional local tax rates up to 2.75%. Economic nexus, with a $100,000 sales threshold, mandates registration for qualifying remote sellers. Most services are not taxable in Tennessee, with specific exemptions. However, Software-as-a-Service (SaaS) is taxable when accessed within the state, regardless of delivery method or pricing structure. Accessing SaaS from a Tennessee location is treated as a sale or licensing, subject to sales tax.
For more information on Tennessee State Tax view our full guide here.
43. Texas
Texas stands out in the corporate taxation landscape by not imposing a corporate income tax, opting for a gross receipts tax model. Small businesses benefit from a no-tax-due threshold, exempting those with annual receipts below $2,470,000 for 2024 and 2025. For businesses exceeding this threshold but not reaching $20 million, a 0.331% tax rate applies.
Different tax rates apply to various business types. C Corporations, S Corporations, Limited Liability Companies (LLCs), and partnerships face unique rules. Sole proprietorships and specific general partnerships are exceptions to franchise tax. The state’s nexus for franchise tax can be established through physical presence or economic factors.
The statewide sales and use tax rate is 6.25%, with local jurisdictions having authority to add up to 2%, resulting in a maximum combined rate of 8.25%. Sales tax nexus is triggered by diverse business activities, and taxable services in Texas encompass 17 categories. Software-as-a-Service (SaaS) is subject to sales tax in Texas, with a focus on taxable data processing services.
For more information on Texas State Tax view our full guide here.
44. Utah
The corporate franchise and income tax rate in Utah is 4.65%, with a minimum tax of $100 for corporations not generating taxable income. Nexus for Utah income tax is triggered by various activities, including selling or providing services in Utah, making loans or issuing credit cards to Utah customers, and engaging in specified activities.
The Utah sales tax rate is 4.7%, with a potential total rate of 8.7% including various local-level taxes. Nexus for sales tax is established if businesses exceed a revenue threshold or engage in specific activities, including maintaining a physical presence, delivering property in Utah, or soliciting orders. The taxation of software depends on whether it is prewritten or custom, with prewritten software being taxable and custom software being exempt. SaaS is taxable based on license fees if used in Utah.
For more information on Utah State Tax view our full guide here.
45. Vermont
Vermont employs a tiered corporate income tax structure with graduated rates ranging from 6.00 percent to 8.5 percent. Vermont imposes a corporate minimum tax, starting at $100 for companies earning less than $500,000, with increasing amounts for higher gross receipts.
The current sales tax rate in Vermont is 6%, potentially reaching a maximum of 7% depending on local municipalities. Businesses with sales of $100,000 or more or 200 transactions in the preceding twelve months must collect and remit sales tax in Vermont. Generally, services in Vermont are tax-exempt, with exceptions for services related to tangible personal property, telecommunication services, and amusement charges. Software as a Service (SaaS) is not taxable in Vermont, as it falls outside the definition of taxable tangible personal property.
For more information on Vermont State Tax view our full guide here.
46. Virginia
Notably, Virginia has maintained a steady corporate income tax rate of 6% since 1972, signifying a prolonged period of stability in the state’s tax policy. The determination of taxable income for most corporations involves a formula considering sales, payroll, and property factors.
Virginia imposes a corporate minimum tax of $100 for companies earning less than $500,000, with varying minimum amounts for higher gross receipts. Income tax nexus in Virginia is triggered for corporations organized under Virginia law or earning income from Virginia sources.
Virginia’s sales tax rate is generally 5.3%, with potential additional regional or local taxes, resulting in a maximum combined rate of 7%. Certain items, like groceries and essential personal hygiene items, are taxed at a reduced rate of 1%.
Generally, services in Virginia are exempt from taxation. However, if a service involves creating or manufacturing a product, sales and use tax regulations may apply. Virginia does not tax cloud services, Software as a Service (SaaS), or digital products, limiting its taxation scope to physical goods and specified services.
For more information on Virginia State Tax view our full guide here.
47. Washington
In Washington state, there is no personal or corporate income tax; however, businesses engaged in commercial activities are subject to business and occupation (B&O) and/or public utility tax based on their gross receipts. The B&O tax is a gross receipts tax calculated on the value of products, gross proceeds of sale, or gross income. Unlike income taxes in other states, Washington’s B&O tax doesn’t allow deductions for labor, materials, or other business costs. The B&O tax rates range from 0.471 percent to 1.5 percent.
Businesses trigger nexus in Washington, requiring B&O tax registration and sales tax collection, if they have a physical presence, exceed $100,000 in gross receipts in Washington, or are organized or commercially domiciled in the state.
The sales tax rate in Washington is 6.5%, but local rates can increase the total tax rate to as high as 10.4%. Certain services, like construction, landscaping, and personal services, are subject to sales tax, while others are generally exempt. Software as a Service (SaaS), is generally taxable.
For more information on Washington State Tax view our full guide here.
48. West Virginia
West Virginia imposes the corporation net income tax on all non-exempt corporations, both domestic and foreign, engaging in business or generating income within the state. This tax is calculated at a rate of 6.5% based on the corporation’s federal taxable income. Additionally, a minimum annual franchise tax of $50 is required.
Businesses entering the state are required to obtain a business registration certificate from the Tax Division. Failure to do so can result in fines of $100 per day for each day of operation without proper registration.
The state’s sales tax rate is 6%, with the potential to reach a maximum of 7% based on local jurisdictions. Sales tax nexus is triggered on an economic nexus standard when annual sales surpass $100,000 or 200 separate sales transactions. West Virginia distinguishes itself by taxing a broad range of services. Software as a Service (SaaS) and software downloads are taxable, while eBooks and digital downloads are exempt from sales tax.
For more information on West Virginia State Tax view our full guide here.
49. Wisconsin
Wisconsin imposes both a franchise tax and an income tax, but a corporation is subject to only one of these taxes in a taxable year. The franchise and income tax provisions are nearly identical, both taxed at the same tax rate of 7.9%. There is no corporate minimum tax, but an economic development surcharge may apply to larger corporations with gross receipts exceeding $4 million.
Wisconsin imposes a 5% state sales and use tax on taxable retail sales, with an additional potential 0.5% imposed by counties. Sales tax nexus is triggered when tangible personal property or taxable services are sold in Wisconsin. Most services are not taxed, except those involving admission or access to specific entertainment or recreational events. Software as a Service (SaaS) is not directly taxed, but the sourcing of retail sales involving prewritten computer software is determined based on specific scenarios, considering factors like business location, delivery instructions, and purchaser’s address.
For more information on Wisconsin State Tax view our full guide here.
50. Wyoming
Wyoming boasts a unique tax environment distinguished by the absence of both corporate and individual tax. This distinctive feature exempts entities and individuals from the obligation to file any tax returns with the state, eliminating tax-related formalities in this jurisdiction.
The current sales tax rate in Wyoming stands at 4%, with the potential to reach up to 6% when factoring in local municipality variations. Sales tax nexus in Wyoming follows an economic standard, triggered when sales of tangible personal property, admissions, or services within the state exceed $100,000 or when the seller conducts 200 or more distinct transactions for delivery in Wyoming during the current or immediately preceding calendar year.
While Wyoming typically does not tax most services, an exception applies to services involving the sale, repair, alteration, or improvement of tangible physical property. In the realm of Software as a Service (SaaS), Wyoming exempts it from taxation as the purchaser does not possess permanent use of the product.
For more information on Wyoming State Tax view our full guide here.
When are state income tax returns due?
The due dates for state income tax returns vary by state. Generally, state income tax returns are due around the same time as federal income tax returns, which is typically on April 15th each year. However, if April 15th falls on a weekend or a holiday, the deadline may be extended to the next business day.
Some states are due a month earlier or later than the Federal return however, and thus it’s crucial to check the specific deadline for the state in which you conduct business, as each state sets its own tax deadlines.
Reducing risk on state tax issues
Reducing the risk associated with state tax issues is crucial for businesses to maintain compliance, avoid penalties, and optimize their overall financial health. One effective strategy involves staying informed about the specific tax laws and regulations of each state in which a business operates. Tax codes can vary significantly from state to state, and a thorough understanding of these differences enables businesses to proactively address potential issues before they arise. Regularly monitoring updates and changes to state tax laws ensures that companies stay abreast of any modifications that may impact their tax obligations.
Implementing robust record-keeping practices is fundamental in reducing the risk associated with state tax issues. Accurate and organized financial records not only facilitate smooth tax filing processes but also serve as a crucial resource in the event of an audit. Companies should maintain meticulous documentation of transactions, income, expenses, and any relevant state-specific details to ensure transparency and accuracy in their tax reporting.
Moreover, engaging with tax professionals or consultants who specialize in state taxation can be invaluable. The 50-state experts at Optic Tax can provide tailored advice based on the unique circumstances of a business, helping to navigate complex state tax issues and optimize tax planning strategies. Conducting regular internal reviews and audits to assess compliance with state tax laws is another risk reduction measure, and something Optic Tax can also assist you with. For optimizing your businesses’s 50-state tax position, view our services page to book a call or tax optimization session with Optic Tax.
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