View Full Version : Corporations in no income tax states
04-10-2001, 01:06 AM
I know this is probably a wrong assumption but here it goes...
Seems to reason that if you are a HUGE company you have to pay tax. Now say my company is in Alaska or Texas or Florida or NH or some other state w/o income tax. I could save millions by not having to pay any state income tax.
In todays convenient world of telephones, email, etc why would it not be to any big big companies advantage to locate to one of those states.
Or why don't more state make it an option.
I suppose maybe there may be looser environmental regulations in some states that would offset the savings in income tax.
What is the SD?
04-10-2001, 01:08 AM
I hit send to fast. I guess what I really mean is say I have a widget company in Oklahoma and I ship them everywhere...Why wouldn't it make sense to move the operations accross the border to Texas and save taxes. Since I would be shipping thm anyway the cost couldn't be that much greater to ship, could it?
04-10-2001, 01:18 AM
Laws are real screwy. In WA, we have no state income tax.
Good! you say. But corporations still have to pay BSE, which is business tax. And it's worse, it's based on revenues, not profit. So you take in $100,000. You spend $100,000 in salaries, cost of goods sold, etc., and make $0 profit, you still have to pay tax on $100,000.
Bad! you say. Huge corporations like Boeing and Microsoft must take a huge beating because of their huge revenues. Nope, revenues from out of state or overseas are exempt. Which means that huge companies like Boeing pay nada, zero, zilch because they don't sell no planes to any company within WA state.
Lots of companies actually take advantage of tax laws like you say. Some states even offer advantages like no taxes for 20 years or something like that for auto manufacturers to set up shop there. And that is why some states have had a lot of businesses move out.
But for a small company it might not make sense, especially if you're the sole owner and all your friends and families are in state.
04-10-2001, 01:27 AM
I know I'm not addressing you're whole question, Mark. I am a 50% shareholder in two in-good-standing Texas corporations (one of which I'll possibly cut the exit deal on tomorrow night - hope, hope, hope). While Texas has no personal income tax, we do have the corporate income tax (known as the franchise tax). Keeping your HUGE company, that ships product all over, model in mind, let me add that the revenue subject to taxation is based on business conducted in Texas; i.e., if I conduct business with a Jackson, MS company and deliver product to and am paid from Jackson, I can deduct that revenue from what is considered for taxation.
04-10-2001, 08:15 AM
All states that have personal income taxes also have corporate income taxes (except Michigan which has a personal income tax and a "single business tax" which is a VAT). Alaska, Florida, New Hampshire, and Washington have corporate but not personal income taxes. As beatle pointed out, Texas has no personal income tax but does have a business franchise tax. That leaves four states that have no personal income tax and (as far as I could discover) no corporate income tax: Nevada, South Dakota, and Wyoming. All three have sales taxes and other taxes.
I believe that, in general, you have to pay tax to the state where your income is derived. If your company is based in Wyoming and you sell your products in Massachusetts, you may still have to pay tax to Massachusetts. That is almost certainly true if your business has a physical presence in Massachusetts, even if the headquarters is in Wyoming.
04-10-2001, 08:54 AM
Here's more info than you possibly wanted to know, but if you have a physical presence in another state (ie: employees or property), then the standard formula for calculating taxable income for the state corporate income tax is:
Adjusted Federal Income
X State Income Tax Factor
= Taxable State Income
The State Factor is normally an average of the receipts (in-state receipts divided by receipts everywhere), property (in-state property divided by property everywhere) and payroll (in-state payroll divided by payroll everywhere).
Usually, the receipts factor is doubled; so you have four percentages, add them together and divide by 4.
So, putting a business in a no-tax state doesn't necessarily provide any benefit, as the state in which you perform the most business will probably have an income tax, and it will be highly unlikely for that business to have no physical presence to avoid taxation.
04-10-2001, 10:04 AM
As others have mentioned, though Texas has no personal income tax, it DOES have corporate taxes. Indeed, the reason Texas was able to get by without an income tax for so long was that corporate taxes on big oil companies used to be enough to generate tremendous revenues all by themselves (especially since the state has not, historically, provided massive services).
Today, of course, the Texas economy is far more diversified, the oil business here isn't what it once was, and the Texas population has skyrocketed. So, the demand for government services has grown, and corporate taxes alone don't cover all state expenses. Texas, like every other state, has to get money SOMEWHERE! We already have a high sales tax, but I would bet there'll be a state income tax in my lifetime.
Bear in mind that, to some extent, you get what you pay for.
Low-tax states often spend very little on services that people in high-tax states take for granted.
Moreover, a state that has no income tax and no corporate taxes may lack a lot of things that a business needs, to succeed. Even IF, say, Wyoming had no income tax and no corporate taxes (I made that up- this is purely hypothetical), Cody might be a poor location for a high-tech firm to set up shop (far from its customers, a difficult place to recruit qualified employees, etc.).
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