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Business Tax Laws

In tax law there are several different types of taxes, and business tax is just one of them. Business tax will all depend on how the business is classified, be it an S Corporation, a Limited Liability Company, or a Sole Proprietorship. But how do business taxes affect these different types of businesses? Are the business tax expenses deductible for the business? Questions like these regarding business tax laws are answered below by the Experts.

What is business tax?

Business tax may also be known as company tax or corporation tax. This tax is based on the capital, income, may be imposed on types of legal entities and can range from city taxes all the way to federal taxes. The majority of countries impose business taxes on businesses within the country, on the income that was made in that county. Some countries impose business tax on all income of the businesses that are organized in that country. The company’s income is subjected to taxes in a similar manner to an individual’s income. For the most part a company’s net profits are subject to business tax.

If a business in the state of Michigan receives all their sales from overseas does the business have to file a Michigan Business Tax?

According to the United States tax law, any money that has been earned, even worldwide, has to be reported to the IRS on a corporate tax return if the corporation was formed in the United States. In regards to the Michigan Business Tax, a company is required to pay Michigan Business Tax only if the gross receipts received in Michigan are in excess of $350 thousand. If a company based in Michigan has no receipts received in the state of Michigan, then that business will not be required to pay Michigan Business Tax.

Are coupons and discounts tax deductible for a S Corporation business when filing business taxes?

The business would not deduct the cost of the coupons or discount. For business tax reporting purposes a business would only report the income received post coupon or discount. A coupon or discount, that have not been used are not deductible for the business, since the business did not incur any costs from coupons that were not turned in. An example would be a business offering a $100 off the purchase of a new set of tires, if one person comes in and purchases a set of tires that would normally cost $400, the business would only report the $300 made after the discount was redeemed.

When are business taxes deductible, the year the incurred or the year they are paid?

When business taxes are able to be used as deductions will depend upon what type of accounting method the business uses, cash or accrual. If a business is using the accounting method of cash then the business tax expense would be deducted in the year that the business tax expense was paid. If the business is using the accounting method of accrual, then the business tax expense would be deductable the year that the business tax was incurred. The cash method is the primary accounting method for many individuals and small businesses.

Business tax expenses are deductible, but when the deduction is to be made will depend on the business’s accounting method. Business tax law may at times be hard to understand, if a person doesn’t understand and may need Expert advice.
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Recent Business Tax Questions

  • NC Sales and use 1. We purchases a new asset (>$1000) from

    NC Sales and use
    1. We purchases a new asset (>$1000) from Wisconsin to develop fixtures for lab service business. This company, along with most out-of-state purchases, did not charge us sales tax. What tax obligation do we have to the state of WI or NC? Is this tax called Sales tax, or Use tax, and what is the tax rate?
    June 2014 Update: We assume now this is the "Machinery, Equipment, Fuel" pg 1 of the 3 page attachment. We also assume 1% up to $80.
    2. Same scenario, but the equipment originates from Canada or the Netherlands. Any differences with the NC tax code?
    3. We periodically purchase printer ink, paper, and other supplies from the local Staples store and used 100% for business. Occasionally, we also purchase online for the same supplies (for example, Amazon.com). Is the retail tax rate collected at Staples the same rate as the NC business tax rate and therefore no year-end tax adjustments are needed? Does the Amazon order have NC tax implications?
    June 2014 Update: We record these purchases at 6.75%. Same with Amazon...we realize that it would be the same tax rate (6.75%) if that rate is correct. We assume that these items would go on the Sales and Use forms (which I think we should have received, but did not).
    4. We buy supplies from industrial supply sources such as McMaster Carr (e.g. nuts and bolts, plastic aluminum material) or Fischer Scientific (e.g. vials or laboratory tubing) for use as part of our R&D development or testing services. Typically, they would be used in conjunction with equipment such as described on (1.). Since they are not "office supplies" and directly support our services, we compile monthly expenditures in this category and list one item for the state forms and at 1%, opposed to 6.75%. Correct?
    5. We were rewarded a development contract from another company in Utah. This is a fee for service contract and can be summarized like the overview (1.). Much of the raw material is purchased from specialty suppliers in various US states that make product to our custom specifications. In these cases, material costs can range from $500 to $5000 and our suppliers do not charge tax (perhaps considered “services” by our suppliers?). At the end of the contract, our customer requested that some (about 50%) of the materials we purchased on their behalf, to be sent to Utah for further use. That is, it is usable material. The other 50% is material that cannot be used, is considered R&D material by them, is worthless, and we can throw in the trash. Do we pay tax on the custom materials or are they “services” as defined by our suppliers, and therefore are exempt from tax? If taxed, which company (supplier, Next Medical, customer) has the obligation to pay state taxes, and what are the rates if the obligation is ours? Do we pay the same tax rate on the usable/shipped material and R&D/trashed material and otherwise are they treated the same way under the tax code? Does any of the material fall under the “Are any services taxable?”
    June 2014 Update: We have, in most cases, have been asking our customers for their Tax Exemption form, and if they send one, we ignore the tax in all cases. We work with some start-ups/investors that have similar "R&D" type of work requests (i.e. does not reach to the point of a saleable product). Who do not have the tax exemption form in all cases...should we be more diligent about getting these forms, and technically, if we do not have a customer tax exemption form, would we be on the hook for taxes?
    6. We are under contract to develop a custom piece of equipment for a customer in North Carolina. We will purchase many components for this equipment, from suppliers in North Carolina and other states, and will invoice the customer for the components as we purchase. Should we keep track of those suppliers that charge us tax (perhaps NC and surrounding states) separately from those that do not, and pay NC tax on those that do not collect? In this case, my customer decided NOT to send us a tax exemption form, although we specifically asked. Would you agree that Next Medical would have the responsibility to invoice and collect tax from my customer in this case, and send it to the state, or would you expect my customer to pay taxes directly to the state based on my material/component invoice and since they are the "end user"?
    7. In which scenarios (if not already answered specifically) can I claim to fall under the form E-595E Sales and Use Tax Agreement Certificate of Exemption, such as the attached, and send to my suppliers in NC or other states? Do I need to register with the NC Dept of Revenue before using this form?
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    I do NOT want to file a C Corp tax return (1120).
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