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What income taxes apply to a Washington business?

Washington has neither corporate nor personal income tax. Washington does have a business and occupation (B&O) tax. B&O taxes gross receipts using a flat rate corresponding to the type of business you are in and applies the rate against value of products, gross proceeds of sales, or gross income of a business. So while legal business form is key in states with income tax, what matters in Washington is not form but function, so to speak. Washington publishes a rate schedule for all the taxable classifications of business from retailing to radioactive waste disposal. A business will need to file monthly, quarterly, or annually depending on estimated tax liability. Some types of business activity are exempt from B&O taxes. If a business activity is taxable, then it must be registered with the Department of Revenue. Also know that there is a Small Business Tax Credit available for businesses with a B&O liability below a threshold amount.

Multistate businesses may be subject to additional taxes. If your business is formed in Washington, but you do business in another state as well, then you may be subject to that other state’s taxes if there is a sufficient “nexus” connecting your business and that state. If your business was formed outside of Washington, but you do business in Washington as well, then even if you won’t be paying any extra income taxes, you may be subject to Washington’s B&O tax. Contact Bjornson Law Offices to determine whether or not your out-of-state business dealings constitute a nexus sufficient to merit additional taxation. Careful tax planning is key to a successful business, and we are here to help.

What income taxes apply to a Montana business?

The degree to which a small business is subject to income tax in Montana depends on its legal business form. For instance, a true corporation is subject to double taxation—the corporation must pay corporate income tax (called “corporate license tax” in Montana) as a legal corporate entity and shareholders must pay personal income tax on distributed dividends. S corporations, partnerships, and sole proprietorships, on the other hand, are not subject to double taxation—income tax is “passed through” to shareholders, partners, or sole proprietors as personal income tax only. Limited liability companies (LLCs) can choose to be taxed either as a corporation or as a partnership, so the LLC’s federal election determines how Montana will treat it. So for instance, if the LLC elects to be taxed as a partnership at the federal level, then it will be taxed as a partnership at the state level. Montana, unlike some other states, does not have a “franchise tax” or “privilege tax” just for doing business in the state. That means that unless you have a true corporation, the corporation as an entity will not be taxed.

Multistate businesses may be subject to additional taxes. If your business is formed in Montana, but you do business in another state as well, then you may be subject to that other state’s taxes if there is a sufficient “nexus” connecting your business and that state. If your business was formed outside of Montana, but you do business in Montana as well, then you may be subject to Montana’s income taxes if there is a sufficient nexus connecting your business and Montana. Contact Bjornson Law Offices to determine whether or not your out-of-state business dealings constitute a nexus sufficient to merit additional taxation. Careful tax planning is key to a successful business, and we are here to help.

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