DP Tool Club 12/CD_ASCQ_12_0294.iso/vrac/sba93_4.zip/F231.SBE

Text File | 1993-08-23 | 18KB | 450 lines

@109 CHAP 11

              ┌───────────────────────────────────┐
              │           C CORPORATIONS          │
              └───────────────────────────────────┘

A "C corporation" is simply a regular corporation that has
not made an "S corporation" election.  As such, a C corpor-
ation is a separate taxable entity, paying taxes on its net
taxable income at the following rates:

              .  First $50,000 of income  --  15%
              .  $50,000 to $75,000       --  25%
              .  $75,000 to $100,000      --  34%
              .  $100,000 to $335,000     --  39%
              .  $335,000 to $10 million  --  34%
              .  $10 million to $15 mil.  --  35%
              .  $15 mil. to $18.333 mil. --  38%
              .  Over $18,333,333         --  35%

@IF117xx](NOTE:  @NAME is a C corporation.)
@IF117xx]
@IF118xx]NOTE: @NAME is NOT a C corporation.
@IF118xx]
@IF118xx]Accordingly, as an S corporation, it will ordinarily not be
@IF118xx]subject to any federal income taxes on its income, unlike a
@IF118xx]C corporation.
@IF118xx]
Note that if a C corporation is considered to be a "quali-
fied personal service corporation" as defined in the Rev-
enue Act of 1987, ALL of its income will be subject to tax
at a flat rate of 34%, instead of the bracket schedule
above.

C Corporations must file an annual federal income tax re-
turn by the 15th day of the 3rd month after the taxable
year ends, on Form 1120.  (S corporations file a Form
1120S.)

@CODE: AL AK AZ AR CO CT DE FL GA ID IL IN IA KS KY LA ME MD MA MN
It will also be necessary to file state corporate income
tax returns annually with the state taxing authorities in
@STATE.

@CODE:OF
@CODE: MS MO MT NB NJ NM NY NC ND OH OK OR PA RI SC TN UT VT VA WV WS
It will also be necessary to file corporate income tax re-
turns with the state of @STATE.

@CODE:OF
@CODE: AL MO
@STATE levies a 5% tax on corporations' income, or
@CODE:OF
@CODE: AL
a 6% rate on financial institutions.
@CODE:OF
@CODE: MO
7% on the net income of banks, trust companies and credit
institutions.  For 1990 and 1991, the corporate tax rate
was increased to 6% on income over $100,000 and 6.5% on in-
come over $335,000.  Missouri voters in 1991 rejected a
proposal to retain the higher (6.5% rate) after 1991, so
that the general corporate tax rate reverted to a flat 5%
as of January 1, 1992.  However, the legislature has passed
a tax bill in 1993 that increases the tax rate to 6.25%,
beginning September 1, 1993, and only allows corporations
to take a deduction for 50% (formerly 100%) of the federal
income tax liability they for the same taxable year.
@CODE:OF
@CODE: AK
The state of Alaska imposes a tax on corporate taxable in-
come, which starts at a 1% bracket and rises to a maximum
bracket of 9.4% on income over $90,000.
@CODE:OF
@CODE: AZ
Arizona imposes a flat rate corporate income tax, since
1990, with a reduced tax rate of 9.3%.  Previously, corpor-
ate tax rates were graduated, with a top rate of 10.5%.
There is also a minimum corporate tax of $50 a year.
@CODE:OF
@CODE: AR
Arkansas has a graduated corporate tax on income, with a
maximum rate of 6% on corporate taxable income over $75,000.
But corporations with over $100,000 of net income pay a
flat tax rate 6.5%, for income years that began on or after
January 1, 1991.
@CODE:OF
@CODE: CO
Colorado imposes a corporate income tax of 5% on the first
$50,000 of taxable income, and 5.2% on income over $50,000
(decreasing to 5.1% on July 1, 1992, and to 5% after June
30, 1993).
@CODE:OF
@CODE: CA
California imposes a franchise tax on the income of corpor-
ations doing business within the state, at a flat rate of
9.3% of the corporation's taxable income.  Even if a corpor-
ation has no income (or a loss), it still must pay a mini-
mum franchise tax each year of $800.

The California franchise tax return is Form 100 (Form 100S
for S corporations).  While California now recognizes S
corporations and taxes their income to the shareholders,
it also imposes a 2.5% tax at the corporate level on an S
corporation's taxable income.
@CODE:OF
@CODE: CT
Connecticut imposes a tax of 11.5% on corporate income
(or, if higher, a tax of 3.1 mills per dollar of capital).
The tax rate declines to 11.25% in 1995, 11% in 1996, 10.5%
in 1997, and to 10% for income years beginning on or after
January 1, 1998.
@CODE:OF
@CODE: DE
Delaware taxes corporations (other than banks and trust
companies) at a flat 8.7% tax rate.  The tax rate on banks
DECLINES after $20 million of taxable income, to as low as
2.7% on income over $30 million.
@CODE:OF
@CODE: DC
A corporate income tax return must also be filed with the
District of Columbia.  The District taxes corporations (in-
cluding S corporations!) at a rate of 10.5% of federal
gross income (with certain adjustments), or at 10.25% for
years ending after 9/92.  There is a $100 minimum tax.
@CODE:OF
@CODE: FL
Florida taxes corporations' income at a rate of 5.5%,
generally.
@CODE:OF
@CODE: GA VA
The state of @STATE taxes corporate income at a rate
of 6%.
@CODE:OF
@CODE: HI
Corporations doing business in Hawaii, except for S corpor-
ations, certain financial corporations and SBICs, are sub-
ject to Hawaii's corporate income tax, at the following
rates:

    . 4.4% on the first $25,000 of income

    . 5.4% on the next $75,000

    . 6.4% on taxable income in excess of $100,000

Banks, savings and loans, SBICs and certain other financial
corporations are generally not subject to the corporate in-
come tax, but instead pay a corporate franchise tax at an
11.7% tax rate, based on their taxable income.  Insurance
companies pay neither tax, instead paying a "gross premiums
tax."

In addition, Hawaii has an all-pervasive "General Excise
Tax" or (gross income tax), in lieu of a sales tax, which
applies to virtually all business revenues, generally at a
4% rate.  It applies not only to corporations, but to the
gross income of virtually all businesses, and even applies
to amounts paid for services (other than salary or wages)
or for real estate rentals.
@CODE:OF
@CODE: IL
The @STATE corporation tax rate is 4% (increased to 4.8%
for the period from 7-1-89 thru 6-30-93).  The rate was
scheduled to drop to 4.4% after June 30, 1993, but has
recently been indefinitely extended at the 4.8% rate.
The Personal Property Replacement Income Tax remains at
2.5%.
@CODE:OF
@CODE: ID
Idaho's corporate tax rate is 8% of taxable income, plus
$10.
@CODE:OF
@CODE: IA
Iowa taxes corporate income at rates starting at 6% on the
first $25,000 and rising to as much as 12% on income over
$250,000.
@CODE:OF
@CODE: KS
Kansas formerly taxed the income of most corporations at a
rate of 4.5%, plus a surtax of 2.25% on income over $25,000.
However, under 1992 legislation, the basic rate dropped to
4%, and the surtax increased to 3.35% (on taxable income
over $50,000), for years after 1991.
@CODE:OF
@CODE: KY
Kentucky has graduated corporate income tax rates, begin-
ning at 4% on the first $25,000 of taxable income and ris-
ing to a top rate of 8.25% on income over $250,000.
@CODE:OF
@CODE: LA
Louisiana corporate tax rates range up to a maximum tax
bracket of 8% on income over $200,000.
@CODE:OF
@CODE: LS
@STATE taxes corporate net income, after bribes, at
a rate of 150%.  This is a major incentive to reduce tax-
able income, as you might well expect.
@CODE:OF
@CODE: ME
Maine taxes corporate income at graduated tax rates, with
a top rate of 8.93% on income over $250,000. There is also
a 10% 1991-1992 surcharge.
@CODE:OF
@CODE: MD
@STATE taxes corporate income at a flat tax rate of 7%.
@CODE:OF
@CODE: NC
NORTH CAROLINA taxes corporate income at a flat tax rate of
7.75%.  In addition, corporate income tax surtaxes are im-
posed at the rates of 3% in 1992, 2% in 1993 and 1% in 1994.
@CODE:OF
@CODE: MA
Corporations subject to Mass. tax pay either an income tax
or a higher tax computed in several different ways, which
is thus rather complex.  The "nominal" tax rate on income
is 9.5% (including a 14% surtax).
@CODE:OF
@CODE: MN
Minnesota taxes the income of corporations and financial
institutions at a 9.8% tax rate, effective since 1990.  C
and S corporations and partnerships are now also subject to
a minimum annual fee based on Minnesota payroll, property
and sales, ranging from zero (for firms with payroll, prop-
erty and sales under $500,000) to $5,000 for those with
over $20 million.
@CODE:OF
@CODE: MS
Mississippi corporate tax rates are the same as for indi-
viduals -- 3% on the first $5,000 of income, 4% on the next
$5,000 and 5% on income over $10,000.
@CODE:OF
@CODE: MT
Montana generally taxes corporate income at a rate of 6.75%.
However, a surtax of 2.3% applied in 1992, and the tax rate
for 1993 is 7.08% on the first $500,000 of net income, and
7.57% on income over $500,000.  In 1994, the tax rate drops
back to 6.75% on the first $500,000 of income, and 7.25% on
the excess.  Corporations are also subject to an annual
minimum tax of $100 ($25 for S corporations).  The tax rate
is increased by 0.25% for unitary groups of corporations
that make a "water's edge" election.
@CODE:OF
@CODE: NB
Corporations subject to Nebraska tax (except financial in-
stitutions) pay corporate income tax at a rate of 5.58% on
the first $50,000 of income and 7.81% on the excess (1992
rate).  A 15% surtax on corporate taxable income over
$200,000 has been added, in addition to a 2% surtax on all
depreciation.  (Both were held unconstitutional for the
1991 tax year.)
@CODE:OF
@CODE: NH
While there is no corporate income tax as such in New
Hampshire, there is an 8% tax on taxable business profits
of organizations having gross business income of over
$12,000 a year.  Under 1993 legislation, the rate drops to
7.5% in fiscal year 1994, and 7% the year after, but is re-
placed by a 0.25% "Business Enterprise Tax" based on the
"enterprise value tax base" (which is the sum of:  all in-
terest and compensation paid or accrued and all dividends
paid by the business enterprise), effective July 1, 1993.

This new tax is allowed as a tax credit, dollar for dollar,
against the Business Profits Tax.
@CODE:OF
@CODE: NJ
New Jersey imposes a business income tax of 9% on the in-
come of corporations, generally, plus a surtax for hazar-
dous waste cleanup until June 30, 1994 that varies from
year to year (currently 0.375% for years ending between
July 31, 1991 and June 30, 1994).
@CODE:OF
@CODE: NM
The state of New Mexico taxes the income of most small cor-
porations (i.e., the first $500,000 of taxable income) at a
rate of only 4.8%.  Larger corporations pay tax at a rate
of 6.4% on taxable income between $500,000 and $1 million,
and 7.6% on amounts over $1 million.  Certain qualified
taxpayers may instead pay an alternate tax based on 3/4 of
1% of New Mexico sales.  All corporations doing business
within the state must also pay an annual $50 franchise tax.
@CODE:OF
@CODE: NY
The state of New York taxes corporate income at 9%, in gen-
eral, but a corporation pays the greater of the tax so com-
puted or as computed based on the corporation's capital
allocated to New York (or a minimum tax).  A 15% surtax is
in effect for the tax years beginning after 6-30-90 and end-
ing before 7-1-93, and a 10% surtax for the year after.
New York City also imposes an income tax on corporations.
@CODE:OF
@CODE: ND
North Dakota taxes corporate income at rates up to 10.5%
on income over $50,000.
@CODE:OF
@CODE: OH
Corporations doing business in Ohio are subject to the
higher of a tax of up to 8.9% of income or a tax based
on value of stock.  An added litter tax is also levied.
@CODE:OF
@CODE: OK
Oklahoma taxes corporations at a rate of 6% of taxable
income.
@CODE:OF
@CODE: OR
Oregon taxes corporate income at a rate of 6.6%.
@CODE:OF
@CODE: PA
Pennsylvania taxes corporate income at a rate of 12.25%,
generally, for years beginning in 1991 and subsequently.
Also, corporations must pay a capital stock and franchise
tax of 12.75 mills per dollar of capital stock apportioned
to the state (minimum $300) each year.
@CODE:OF
@CODE: RI
Rhode Island's corporate tax rate is generally 9%, with a
$250 minimum. An 11% tax surcharge is in effect for tax
years ending on or after March 31, 1991, and before 1994.
@CODE:OF
@CODE: SC
South Carolina taxes most corporations at a 5% tax rate;
banks pay at a 4.5% rate.
@CODE:OF
@CODE: TN
Tennessee's corporate excise tax (on net earnings) applies
at a rate of 6% of a corporation's federal taxable income,
with adjustments.
@CODE:OF
@CODE: UT
Utah taxes most corporations and banks at a rate of 5% on
net income.  There is a $100 minimum annual tax.
@CODE:OF
@CODE: VT
Vermont taxes corporate income at graduated rates of up to
8.25%, on income over $250,000.  There is a minimum tax of
$150.
@CODE:OF
@CODE: WV
The West Virginia corporate tax rate was 9.15% for the year
beginning 7-1-91, but dropped to 9% on July 1, 1992.
@CODE:OF
@CODE: WS
Wisconsin taxes corporate income at a flat rate of 7.9%.
Until April 1, 1999, there is also a surcharge to fund re-
cycling, of 5.5% (minimum $25, maximum $9800).
@CODE:OF
@CODE: TX WY WA NV SD MI
There is no general state corporate income tax in the state
of @STATE.
@CODE:OF
@CODE: TX

However, Texas does impose a capital franchise tax on in-
creases in "earned surplus," which is essentially like a
4.5% corporate income tax on federal taxable income, with
certain adjustments.
@CODE:OF
@CODE: SD

However, South Dakota does impose an income tax on banks
and other financial institutions, at 6% on net income of
$500 million or less.
@CODE:OF
@CODE: MI

However, Michigan has a "Single Business Tax," somewhat
similar to an income tax, that applies at a 2.35% rate to
the tax base amount for all businesses (corporate, individ-
ual or partnership) in the state, except those with a tax
base under $100,000.
@CODE:OF
@CODE: WA

However, Washington does impose a Business & Occupations
Tax on the GROSS income of all firms doing business in the
state, usually ranging from about 1/2 of 1% to 1 1/2% of
their sales.
@CODE:OF

The C corporation has certain tax advantages over S corpora-
tions and unincorporated businesses.  These include the fol-
lowing:

    .  It is a separate taxpayer, which can be used to
       split income between itself and its owner(s), with
       potentially lower overall tax rates as a result of
       the income-splitting.

    .  A C corporation can deduct amounts paid for fringe
       benefits for its employee/owners, such as medical
       insurance or medical reimbursement plans, disabil-
       ity insurance, or group term life insurance.  An S
       corporation generally cannot deduct any such expen-
       ses paid on behalf of employees who are 2% (or lar-
       ger) shareholders, and unincorporated businesses
       cannot deduct such payments on behalf of the owners,
       for the most part.

    .  C corporations (other than certain "personal service
       corporations") are generally allowed to elect a fis-
       cal tax year, which can be useful in tax planning.
       S corporations and partnerships must generally be on
       a calendar year, except for those that were already
       on a fiscal year and elected on a timely basis to re-
       tain such fiscal year (with certain onerous condi-
       tions attached) or new S corporations or partner-
       ships which may be allowed to elect a year ending in
       September, October, or November, instead of the cal-
       endar year (with the same conditions attached).

    .  C corporations are able to deduct 70% (or more in
       some cases) of the dividends they receive from in-
       vestments in other corporations.  This "dividends
       received deduction" is not available on dividends
       received by an S corporation or an unincorporated
       business.

    .  Corporate maximum tax rates are generally lower
       than the maximum individual rates, since the
       passage of the 1993 Deficit Reduction package.


Disadvantages of C corporations include the following:

    .  They are required to use the accrual method of ac-
       counting (except in the case of certain personal
       service corporations), while S corporations and un-
       incorporated businesses may use the cash method of
       tax accounting, unless they have inventories of
       goods they sell.


    .  C corporations are potentially subject to double
       taxation where income is paid out as dividends or
       accumulated and thus potentially subject to the cor-
       porate "accumulated earnings" penalty tax.  C cor-
       porations with certain types of income such as in-
       terest, dividends, rents and royalties are potenti-
       ally subject to the "personal holding company tax"
       on such income if it is not paid out as dividends.

    .  The difference between a C corporation's "Adjusted
       Current Earnings" and its taxable income is mostly
       (3/4) a tax preference item for purposes of the
       alternative minimum tax (AMT), and thus may some-
       times result in an AMT tax liability that another
       type of entity would not have incurred.