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State and Local Tax Law

State and Local Tax Law

If you are thinking about starting a small business, it doesn’t matter where your new business operates, it will need to pay certain state and local taxes, in addition to those required by the federal government. Since tax laws pertaining to small businesses can vary among jurisdictions, it is critical that you check with your state and local government revenue or taxation office to determine the tax obligations of your new business. Keeping this in mind, the following is a general discussion of the typical state and local taxes for small businesses.

State Income Tax

All businesses must pay state income taxes. Some businesses, such as corporations, are taxed as separate entities for income purposes, while the income of other businesses is not taxed separately from the income(s) of their principal owner(s). For example, in most states, a sole proprietorship’s income and expenses are included on the personal income tax return of the sole proprietor. Partnerships and limited liability companies (LLCs) are also often taxed like a sole proprietorship, although LLCs may elect to be taxed like a corporation.

State business income tax is typically a pay-as-you-go tax, meaning businesses usually must pay the tax as income is earned throughout the year. As a business, you may be required to make estimated tax payments during the year. If you are not required to make estimated tax payments, you may pay any tax due when you file your business or individual income tax return at the end of the tax year in April.

To learn more about business income tax obligations, how to pay your business income tax, and other business regulations in your state, you can visit the Internal Revenue Service (IRS) website, which provides links to the state governments of all 50 states.

State Employment Tax

If you intend to hire employees for your new business, you should be aware that employers are required to pay certain employment-related state taxes, in addition to those required by the federal government. Depending on where you operate your business, your state employment tax obligations can include:

  • Withholding a portion of each employee’s wages to pay state income tax on their behalf
  • Payment of unemployment taxes
  • Payment of state workers’ compensation insurance
  • Retention of your business’s payroll and employment tax records for a number of years

Remember also that in addition to payment of state employment taxes, one of the first steps you will need to take when starting a small business is to obtain an Employer Identification Number (EIN) from the IRS. Your business may also need to acquire a similar tax identification number from your state’s department of revenue or taxation.

Local Taxes

Your tax obligations do not end at the federal and state level; you will also likely be subject to local (city or county) taxes as well. The taxes you may need to pay to your local government can include:

  • Property tax
  • Operating tax, which is used by some cities in lieu of a business license
  • Sales tax, if your business is engaged in retail sales
  • Income tax, which is rare but may be imposed on businesses operating in larger cities

As with state taxes, your local taxes will vary depending on the rules of the city and county that your business is operating within.

Free Consultation with a Business Tax Attorney

If you are here, you probably have a business tax law issue you need help with, call Ascent Law for your free tax law consultation (801) 676-5506. We want to help you.

Michael R. Anderson, JD

Ascent Law LLC
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States

Telephone: (801) 676-5506

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About the Author

People who want a lot of Bull go to a Butcher. People who want results navigating a complex legal field go to a Lawyer that they can trust. That’s where I come in. I am Michael Anderson, an Attorney in the Salt Lake area focusing on the needs of the Average Joe wanting a better life for him and his family. I’m the Lawyer you can trust. I grew up in Utah and love it here. I am a Father to three, a Husband to one, and an Entrepreneur. I understand the feelings of joy each of those roles bring, and I understand the feeling of disappointment, fear, and regret when things go wrong. I attended the University of Utah where I received a B.A. degree in 2010 and a J.D. in 2014. I have focused my practice in Wills, Trusts, Real Estate, and Business Law. I love the thrill of helping clients secure their future, leaving a real legacy to their children. Unfortunately when problems arise with families. I also practice Family Law, with a focus on keeping relationships between the soon to be Ex’s civil for the benefit of their children and allowing both to walk away quickly with their heads held high. Before you worry too much about losing everything that you have worked for, before you permit yourself to be bullied by your soon to be ex, before you shed one more tear in silence, call me. I’m the Lawyer you can trust.