Taxes Paid by Corporations
The wide array of taxes paid by corporations requires a constant diligence to avoid penalties. Corporations pay taxes on income, employment and property values. In addition, corporations are responsible for collecting and paying to taxing authorities some taxes that are assessed on employees and customers.
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Income Tax
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Corporations owe income tax on their profits unless they are exempt under Section 501 of the tax code. This is the section that addresses so called "non-profit" organizations. However, corporations that elect tax status as "S corporation" do not pay income tax. The profit of S corporations is still taxable. But the corporate shareholders pay the tax liability by reporting the income on their personal tax returns.
Employment Taxes
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Corporations with employees are responsible for deducting and remitting taxes from paychecks. These taxes include a calculated amount of income tax plus employee contributions to Social Security and Medicare. In addition, the Federal Insurance Contributions Act (FICA) requires employers to pay matching amounts of Social Security and Medicare taxes. A corporation with employees is also liable for federal unemployment insurance tax. This tax is reported annually but deposits are required throughout the year depending upon the amount of tax due.
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Property Taxes
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Taxes are assessed on the property values of corporations by municipalities such as cities, counties, school districts, and various other taxing authorities. Property taxes are assessed at a uniform percentage of the market value of business property. A major corporate asset subject to property taxes is real estate. Also subject to property taxes is personal property used in business. This includes machinery, computer equipment, telephones, furniture and supplies. The tax rate is applied to the value of these assets. In most cases, corporations provide taxing authorities with a statement of property values each year. In some instances, property values are established by inspection of an appraisal authority.
Sales Tax
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Most states require corporations to collect sales tax on products or services sold. Sales tax is collected from customers at the time of each sale. Although some types of products and services are exempt form sales tax, most items are taxable. Many areas have a local sales tax assessment in addition to the state sales tax. But the states typically collect the entire tax and provide settlement with local authorities.
State Taxes
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There are a variety of taxes that corporations pay that are distinctive to each state where business is conducted. One tax collected by states is an assessment for the unemployment insurance system. Every state has a different unemployment tax rate. In addition, a range of rates is normally deployed that depends upon the employment experience of the corporation. These taxes are in addition to federal unemployment tax, because states operate the unemployment insurance systems required by federal law.
In some states, an unemployment tax is deducted from employee compensation and remitted by employers. There are also other types of tax assessments in some states. For example, corporations in California are responsible for Employment Training Tax and State Disability Insurance tax.
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