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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 Jones Mungas 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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