By Lyssa Kemper, CPA, Partner
When thinking about business taxes, federal and state income taxes often take center stage. But income tax is just one piece of the puzzle. Businesses also face a variety of non-income-based taxes that can impact their bottom line, such as payroll taxes, sales and use taxes, and even taxes on business property.
Beyond simply paying taxes, businesses may also be responsible for collecting, reporting, and remitting taxes on behalf of customers and employees. Failing to comply with these obligations can lead to unexpected penalties. Here’s a breakdown of the key non-income taxes every business should understand.
SALES, USE, AND EXCISE TAXES
Most businesses are familiar with sales tax, but determining when and where to collect and remit sales tax can be complex, especially for businesses operating in multiple states or selling online.
Key Considerations
- Sales Tax – Businesses must collect sales tax from customers if they have nexus (a sufficient business presence) in a particular state or other local jurisdiction. However, not all goods and services are taxable, and some businesses and other organizations may qualify for exemptions on specific purchases. Most states have their own definition of nexus and, sales tax nexus often differs from state income tax nexus.
- Use Tax – A business that buys taxable goods without paying sales tax upfront (e.g., from an out-of-state vendor) may be required to self-report and pay use tax.
- Excise Tax – Certain products, such as gasoline, alcohol, and tobacco, are subject to federal and state excise taxes, which must be tracked and reported.
Why It Matters
Even if a business fails to collect sales tax from customers, it is still responsible to the state for paying and remitting the required sales tax. Failure to comply can result in costly penalties and audits.
PAYROLL TAXES
If your business has employees, payroll taxes are a major financial and compliance responsibility.
Employer Obligations
- Federal Payroll Taxes
– Employers must withhold federal income tax, Social Security, and Medicare taxes from employees’ paychecks.
– Employers must also pay their share of the Social Security and Medicare Taxes.
– Employers must also pay federal unemployment taxes on the base amount of employee wages. - State & Local Payroll Taxes
– Many states require employers to withhold state and sometimes city income taxes from employee wages.
– Most states have additional rules for withholding state income taxes from wages paid to nonresident employees traveling for business.
– Most states also require employers to pay unemployment insurance (UI) taxes on employee wages.
– Some states impose additional requirements for workers’ compensation, disability, and paid leave funds. - Tax Rate Impacts – Unemployment insurance taxes increase as more former employees file unemployment claims, making workforce management critical.
Why It Matters
Payroll tax errors, such as failing to withhold or remit withheld taxes or misclassifying employees as independent contractors, can lead to significant penalties and legal issues with the IRS and state agencies.
PROPERTY TAXES
Most businesses think of property tax as something homeowners deal with, but businesses also pay taxes on their real estate and personal property.
What’s Taxed?
- Real Estate – If a business owns office buildings, warehouses, or land, it must pay annual property taxes based on the assessed value of the property.
- Business Personal Property – Some states also tax company vehicles, equipment, computers, office furniture, and sometimes even inventory.
Property tax assessments can fluctuate yearly, especially if property values rise. However, many jurisdictions cap how much a tax bill can increase in one year to protect businesses from sudden spikes.
Why It Matters
Businesses should review their property assessments annually to ensure they are fair and accurate. Appealing an incorrect assessment could result in significant tax savings.
UNCLAIMED PROPERTY REPORTING
While not technically a tax, unclaimed property laws require businesses to report and remit unclaimed funds (such as uncashed paychecks) to the state after a set period.
Many businesses overlook this obligation, but failing to report unclaimed property can lead to hefty penalties and audits. In some states, businesses must file a report even if they have no unclaimed property to report.
FINAL THOUGHTS: BE PROACTIVE WITH BUSINESS TAXES
Understanding and managing non-income-based taxes is as important as planning for income taxes. Businesses should regularly review their tax obligations, filing deadlines, and compliance strategies to avoid penalties and optimize their tax positions.
Need help navigating your business’s tax responsibilities? The MichaelSilver team is here to provide expert guidance and ensure your business stays compliant. Contact our trusted tax advisors at 847-982-0333 today.