State LLC Taxes

State tax rates might vary depending on where your firm is located.

To prevent misinformation and late filings, keep up to current on your state’s LLC franchise tax, sales tax, and employment taxes.

This article will describe the many forms of state LLC taxation, which states contain which taxes, and other topics.

Taxation through Pass-Through

Businesses that are classified “pass-through” businesses are taxed as individuals rather than as a company. In other words, the members, not the LLC, pay taxes.

By default, an LLC is treated as a pass-through company, with single-member LLCs treated as disregarded entities and multi-member LLCs treated as partnerships.

Pass-through taxation protects LLC owners from double taxation, which refers to paying income and employment taxes for your firm as well as on your personal tax return. Unlike corporations and limited liability companies that choose to be taxed as C corporations, owners of a firm with pass-through taxation pay just one tax on total earnings, at each member’s individual income tax rate.

LLC owners who elect default LLC taxation may opt to pay themselves from their share of the LLC earnings. The distribution will thereafter be subject to self-employment taxation. Owners of C corporations and S corporations are paid a salary and hence do not have to pay self-employment tax on their individual returns.

The Franchise Tax

A franchise tax is a yearly levy that permits firms to continue operating in a state. This tax may be referred to differently in various states. The amount and method of calculation of business taxes vary by state, although in many situations, it is a flat rate. Failure to comply may result in the closure of your company.

States with LLC Franchise Tax

Alabama: This tax, sometimes known as the Business Privilege Tax, is levied on the revenue of an LLC from the preceding tax year.

Arkansas: All LLCs must pay a $150 yearly franchise tax.

California requires all LLCs to pay an annual franchise tax of at least $800. LLCs with revenues in excess of $250,000 may be subject to extra fees.

Delaware: All LLCs pay a $300 yearly tax.

Minnesota requires Multi-Member LLCs with combined property, payroll, and yearly sales of more than $970,000 to pay a Partnership Tax. To calculate their minimal fees, LLCs must additionally submit an extra form with the state.

Nevada has a Modified Business Tax that applies to companies who pay at least $50,000 in wages every quarter.

New Hampshire has two business taxes: the Firm Profits Tax, which is a fixed rate on LLCs with gross revenues exceeding $50,000, and the Business Enterprise Tax, which is based on the profits of each individual business.

Tennessee: The Franchise and Excise Taxes are dependent on the net value and taxable income of an LLC.

Texas: LLCs with more than $1.13 million in yearly income must pay a franchise tax along with their annual report.

Vermont requires all Vermont LLCs to pay a minimum Business Entity Income Tax of $250.

Washington, D.C.: This tax is levied on all unincorporated firms with gross revenues of $12,000 or more and is submitted on Form D-30.

The sales tax

Sales tax is a tax on tangible goods that the state collects and customers pay. The tax rate is multiplied by the product price and then applied to the final sale. Some states will delegate taxation authority to local governments.

States with No Sales Tax

Alaska

Delaware

Hawaii

Montana

State of New Hampshire

Oregon

Visit our sales tax guide to discover all there is to know about collecting sales and use tax.

Tax on Gross Receipts

The two ways of paying taxes on items are sales tax and gross receipts tax. The customer pays the sales tax, whereas the firm pays the gross receipts tax. Depending on the nature of your company, you may be required to pay a sort of gross receipts tax.

Example: Your LLC operates in a state having a 5% sales tax and a 5% gross receipts tax. In each state, you sell a $20 product. With sales tax, the total purchase price is $21. The final sale is $20 with gross receipts tax, however your firm must pay the state $1.

States that have a Gross Receipts Tax

Delaware
Hawaii (General Excise Tax) (General Excise Tax)
Nevada (Commerce Tax) (Commerce Tax)
State of New Mexico
Washington: (Commercial Activity Tax) Ohio: (Business and Occupation Tax)

Taxes on Employment

There are many types of taxes that your company will pay on behalf of your workers. Some will be withdrawn from employee paychecks, while others will be paid by you, the company.

While the federal government imposes separate employment taxes, state governments impose extra taxes.

The Withholding Tax

Employees complete Form W-4, which lets the employer to determine how much money to take from their paychecks. The payments are subsequently transferred by the employer to the appropriate state agency.

States that do not have a state withholding tax:

Alaska

Florida

Nevada

State of New Hampshire

Dakota State

Tennessee

Texas

Washington

Wyoming

NOTE: States that do not have their own withholding tax are nevertheless required to pay federal withholding tax.

Tax on Unemployment Insurance (UI)

This is a tax that is paid for by the employer rather than the workers. This money is given to state agencies in order to provide unemployment compensation for qualifying employees.