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Text File | 1996-11-06 | 21KB | 540 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 corporation
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 "qualified
personal service corporation" as defined in the Revenue 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 return
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
returns 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.
@CODE:OF
@CODE: AK
The state of Alaska imposes a tax on corporate taxable
income, 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%.  There is 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
corporations doing business within the state, at a flat
rate of 9.3% of the corporation's taxable income.  This
rate has been cut to 8.84% for income years (tax years,
in English) beginning on or after January 1, 1997.  For
those corporations with a 1996-97 fiscal year, the tax
rate will be a blended rate between 9.3% and 8.84%.

The corporation alternative minimum tax rate has also been
cut, from 7% to 6.65%, beginning in 1997.

Even if a corporation has no income (or a loss), it still
must pay a minimum franchise tax each year of $800.  For
income years beginning on or after January 1, 1997, the
minimum franchise tax is reduced to $600 for new businesses
with gross receipts of less than $1 million and a tax
liability of $800 or less.  The reduced franchise tax for
new businesses does not apply to any corporation if 50
percent or more of its stock is owned by another corporation.
CAL. REV. & TAX. CODE Sec. 23221.

Banks and other financial corporations are subject to a
higher franchise tax rate that varies from year to year
(11.3% of income in 1995).  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.
@CODE:OF
@CODE: CT
Connecticut imposed a tax of 11.25% on corporate income
in 1995 (or, if higher, a tax of 3.1 mills per dollar of
capital, up to a maximum tax of $1 million).  The income
tax rate declines to 10.75% in 1996, to 10.5% in 1997, 9.5%
in 1998, 8.5% in 1999, and to 7.5% for income years beginning
after December 31, 1999.  There is a minimum tax of $250.
@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
(including S corporations!) at a rate of 9.5% of federal
gross income (with certain adjustments) for tax years
beginning on or after January 1, 1995, plus a 5% surtax,
bringing the overall rate to 9.975%

There is a $100 minimum tax, and a "public safety fee" that
ranges from $25 to $8,400.
@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
corporations, certain financial corporations and SBICs,
are subject to Hawaii's corporate income tax, at the
following tax 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

Certain qualified taxpayers may instead pay an alternate tax
based on 1/2 of 1% of Hawaii sales, if they have not more
than $100,000 annual in-state sales.

Banks, savings and loans, SBICs and certain other financial
corporations are generally not subject to the corporate
income 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% in 1996.  The
Personal Property Replacement Income Tax, which is an
additional income tax, remains at 2.5% (1.5% on most kinds
of partnerships, and on LLCs 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, beginning
at 4% on the first $25,000 of taxable income and rising 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 taxable
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, a corporate income tax surcharge of 1%
was imposed in 1994.  This tax rate is scheduled to decline
from 7.75% to 7.5% in 1997, to 7.25% in 1998, and 7.0% in
1999, before finally settling at 6.9% after 1999.
@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.

S corporations with total receipts of less than $6 million
are exempt from tax, and pay tax at a 3% rate if total
receipts are between $6 million and $9 million, or at a 4.5%
rate if total receipts are $9 million or more.
@CODE:OF
@CODE: MN
Minnesota taxes the income of corporations and financial
institutions at a 9.8% tax rate, plus an additional tax on
alternative minimum taxable income.  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
individuals -- 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%,
increased by 0.25% (to 7%) for unitary groups of corporations
that make a "water's edge" election.  There is a minimum tax
of $50.  Certain corporations are allowed to elect to instead
pay a flat rate tax of 0.5% on their gross sales in Montana.
@CODE:OF
@CODE: NB
Corporations subject to Nebraska tax (except financial
institutions) 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 this
rate reduction is offset by a 0.25% "Business Enterprise
Tax" for firms with gross receipts over $100,000 or with
an "enterprise value tax base" over $50,000.   (The
"enterprise value tax base" is the sum of:  all interest
and compensation paid or accrued and all dividends paid
by the business enterprise).

This new tax is allowed as a tax credit, dollar for dollar,
against the Business Profits Tax.

The 1993 law also repealed various bank and corporation
license fees and share taxes.
@CODE:OF
@CODE: NJ
New Jersey imposes a business income tax of 9% on the
income of corporations, generally, plus a surtax for
hazardous waste cleanup of 0.375%, which expired on June
30, 1994.  Beginning July 1, 1996, a lower tax rate of 7.5%
applies to C corporations with net income of $100,000 or
less, and a lower rate also applies to S corporations
with net incomes of $100,000 or less.

There is a $150 minimum tax on domestic corporations in
1996, increasing to $200 in 1997, and indexed after 1997.
A similar minimum tax applies to foreign corporations,
except that it is $200 for 1995 through 1997 and indexed
after 1997.
@CODE:OF
@CODE: NM
The state of New Mexico taxes the income of most small
corporations (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 corporations may instead pay an alternate tax
based on 3/4 of 1% of New Mexico sales, if they have not
more than $100,000 in annual in-state sales.

All corporations doing business within the state must also
pay an annual $50 franchise tax.

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
general, but a corporation pays the greater of the tax so
computed or as computed based on the corporation's capital
allocated to New York (or a minimum tax).  A 10% surtax was
in effect for the tax years ending between 7-1-94 and 6-30-95,
but is reduced to 5% for years ending before 6-30-96, finally
expiring thereafter.  Certain small businesses may also
qualify for slightly lower rates.

New York City also imposes an income tax on corporations, as
well as on unincorporated businesses.
@CODE:OF
@CODE: ND
North Dakota taxes corporate income at graduated rates which
rise to a maximum of 10.5% on taxable income over $50,000.  A
reduced rate of 0.6% to 1.0%, based on gross sales, may be
elected by certain qualifying corporations with no more than
$100,000 of in-state sales.
@CODE:OF
@CODE: OH
Corporations doing business in Ohio are subject to the higher
of a tax of up to 8.9% of income on income over $50,000, or
a tax based on value of stock.  An added litter tax is also
levied, and was recently extended.

There is a minimum income tax of $50.
@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%.  There is
a minimum tax of $10.  Certain corporations may instead be
able to elect to pay a tax of 0.25% (or 0.125% in some cases)
on gross Oregon sales.
@CODE:OF
@CODE: PA
Pennsylvania taxes corporate income at a rate of 9.99% in
1995 and subsequent years.

Starting in 1995, the sales factor used in apportioning
business income is given double weight.

Also, corporations must pay a capital stock and franchise
tax of based on the value of capital stock apportioned to
the state each year.  The capital stock value exemption was
increased from $75,000 to a $100,000 exemption, effective
January 1, 1995.  The minimum capital stock tax is $300
annually.
@CODE:OF
@CODE: RI
Rhode Island's corporate tax rate is generally 9%, with a
$250 minimum.
@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.  They are also subject, like individuals,
to the tax on interest and dividend income.
@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.  Estimated
tax payments, beginning in 1995, are due at the same time
as federal, and with the same requirements.  However, some
additional exceptions are allowed:  Utah corporate franchise
tax, where based on the annualized income method, may be
paid in amounts equal to 22.5%, 45%, 67.5% and 90% of the
annualized estimated tax, in four quarterly installments.
Also, no estimated tax is required in the first year for a
new corporation that prepays at least the amount of the
minimum tax by the tax return due date.
@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%.
For tax years ending on or before April 1, 1999, there is
also a surcharge to fund recycling, equal to 5.5% of the
gross tax liability (minimum of $25, maximum surcharge of
$9800).  For S corporations, the surcharge is 0.4345% of
net income (subject to the same minimum and maximum).
@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
increases 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 2.3% rate to the
tax base amount for all businesses (corporate, individual,
LLC 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 and occupations, effective since July 1, 1993.

Some activities may be subject to more than one B & O tax.
For example, a Washington manufacturer that ships all of
its output outside of the state may be exempt from the
retailing B & O tax, but will still have to pay the
manufacturer's B & O tax.  But a "multiple activities tax
credit" effectively limits the total tax to the highest of
such multiple tax rates where more than one tax applies to
a given activity.

The B & O tax also applies to vertically integrated firms,
so that your company may be taxed on its own internal
dealings, such as a retailer that has its own wholesaling
distribution 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
offsets any B & O tax.)  Effective January 1, 1995, an 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
corporations and unincorporated businesses.  These include
the following:

    .  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, disability
       insurance, or group term life insurance.  An S
       corporation generally cannot deduct any such expenses
       paid on behalf of employees who are 2% (or larger)
       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 fiscal
       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
       retain such fiscal year (with certain onerous
       conditions attached) or new S corporations or
       partnerships which may be allowed to elect a year
       ending in September, October, or November, instead
       of the calendar year (with the same conditions
       attached).

    .  C corporations are able to deduct 70% (or more in
       some cases) of the dividends they receive from
       investments 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
       accounting (except in the case of certain personal
       service corporations), while S corporations and
       unincorporated 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
       corporate "accumulated earnings" penalty tax.  C
       corporations with certain types of income such as
       interest, dividends, rents, and royalties are
       potentially 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 sometimes
       result in an AMT tax liability that another type of
       entity would not have incurred.