CD ROM Paradise Collection 4/CD ROM Paradise Collection 4 1995 Nov.iso/business/sba952.zip/F231.SBE

Text File | 1995-05-09 | 19KB | 488 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 35%, 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
@STATE levies a 5% tax on corporations' income, or
a 6% rate on financial institutions.
@CODE:OF
@CODE: MO
Missouri levies a 6.25% tax on corporations' income, or
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 passed
a tax bill in 1993 that increased 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 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 at the
tax rate of 9% (for periods after December 31, 1993).  This
is down from a top rate of 10.5% as recently as 1989. 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% on all their income.
@CODE:OF
@CODE: CO
Colorado imposes a corporate income tax at a flat rate of
5%.
@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.

Banks and other financial corporations are subject to a
franchise tax rate of 11.3% of income in 1995 and 11.47%
in 1994.  The higher franchise tax is imposed because
banks and financial corporations are exempt from certain
other state taxes.

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 1.5% tax at the corporate level on an S
corporation's taxable income.  (This tax rate was 2.5% for
years that began before January 1, 1994).
@CODE:OF
@CODE: CT
Connecticut imposes a tax of 11.5% on corporate income in
1994 (or, if higher, a tax of 3.1 mills per dollar of capi-
tal). 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) from October 1,
1994 through December 31, 1994, and thereafter at a rate
of 9.975%.  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 Illinois corporation tax rate is 4.8%  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% (1.5% on partnerships and S corporations).
@CODE:OF
@CODE: ID
Idaho's corporate tax rate is 8% of taxable income, plus
a $10 excise tax when filing the tax return.  There is a
$20 minimum tax, regardless of whether there is any taxable
income.
@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
In Kansas, the basic corporate tax rate is 4%, with a surtax
of 3.35% on taxable income over $50,000.
@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 one 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.
@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 surcharges were
imposed in 1993 and 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).  There is a minimum tax
of $456.
@CODE:OF
@CODE: MN
Minnesota taxes the income of corporations and financial
institutions at a 9.8% tax rate.  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, property 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 was 7.08% on the first $500,000 of net income, and
7.57% on income over $500,000.  In 1994, the tax rate dropped
back to 6.75% for most corporations, increased by 0.25% (to
7%) 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.
@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 dropped
to 7.5% in fiscal year 1994, and 7% thereafter, 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.

The new law also repealed certain bank and corporation li-
cense fees and share taxes.
@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 of 0.375%, which expired on 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.
A temporary 18% (or $200,000) surtax increase in the amount
of tax due for certain unitary corporations, which was due
to go into effect in 1993, has been retroactively repealed
by the Legislature in 1994, and thus never went into effect.

Corporate taxpayers, for tax years beginning on or after
January 1, 1996, may calculate their New Mexico estimated
corporate income taxes by using the greater of $5,000 or
100% of the tax due for the previous taxable year, as a
"safe harbor" for current year (1996 and later) estimated
tax payments.
@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 was
in effect for the tax years beginning after 6-30-90, but
is being phased out at 5% a year, finally expiring on June
30, 1997.  Certain small businesses may also qualify for
slightly lower rates.

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,
and was recently extended through 1994 and 1995.
@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%.  On
November 9, 1993, Oregon voters rejected a proposal to
increase the tax rate to 7.6%.
@CODE:OF
@CODE: PA
Pennsylvania taxes corporate income at a rate of 11.99%
(formerly 12.25%, until 1994 tax cut legislation passed)
in calendar and fiscal year 1994, 10.99% for 1995, 10.75%
for 1996, and 9.99% for 1997 and thereafter.  Also, cor-
porations must pay a capital stock and franchise tax of
based on the value of capital stock apportioned to the
state each year.
@CODE:OF
@CODE: RI
Rhode Island's corporate tax rate is generally 9%, with a
$250 minimum.  An 11% tax surcharge was 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 ($75 for a small farm corporation).
@CODE:OF
@CODE: WV
The West Virginia corporate tax is imposed at a flat rate
of 9% of taxable income.
@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% of the gross tax liability (minimum of
$25, maximum surcharge of $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.
@CODE:OF
@CODE: MI

However, Michigan has a "Single Business Tax," somewhat
similar to an income tax, that applies at a 2.35% rate
(2.3% effective October 1, 1994) to the tax base amount
for all businesses (corporate, individual or partnership)
in the state, with certain exceptions for small businesses.
@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 2% of their
sales, generally, with a new 2.5% tax on various business
services, effective as of July 1, 1993.  Some activities
may be subject to more than one B & O tax, but a "multiple
activities tax credit" effectively limits the total tax to
the highest of such multiple tax rates.  For example, a
Washington manufacturer that ships all of its output out-
side of the state may be exempt from the retailing B & O
tax, but will still have to pay the manufacturer's B & O
tax.

The B & O tax also applies to vertically integrated firms,
so that your company may be taxed on its own internal deal-
ings, such as a retailer that has its own wholesaling dis-
tribution network.

A tax credit is allowed against the B & O tax for small
firms, if their monthly tax before the credit is less than
$70.  (If less than $35 a month, the credit completely off-
sets any B & O tax.)  Effective January 1, 1995, a new R & D
tax credit is allowed against the B & O tax, in an amount
equal to 2.5% of Research & Development expenditures that
exceed 0.92% of the company's taxable gross receipts after
deductions.

@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.