If you’re opening a store, one of your first steps will be to register with the relevant state tax agency. They will help you find out exactly what taxes you are required to charge, based on your type of business and your inventory. Using a POS such as Lightspeed will enable you to charge customers taxes based on the type of good they buy, without employees having to make calculations. Click here for a free trial:
What Are State Business Taxes?
State business taxes include a wide range of income, payroll and sales taxes. The exact taxes you might be liable for will vary depending on your state, and depending on the products/services that you sell.
Here are some of the most common state business taxes:
1. State Income Taxes
If your state has an income tax, you’ll need to withhold this from your employee’s paychecks. You’ll also typically need to pay this on your own salary as a business owner.
States that DO NOT tax earned income include: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.
2. State Unemployment Taxes (SUTA)
If you have employees, you generally need to pay a state unemployment tax. This rate is typically around 2 – 5% of their salary, depending on your state and your employee turnover rate. The more employees you lay-off or fire, the higher your rate.
You should receive your SUTA rate each year from your state. Learn more about SUTA (and federal unemployment taxes).
3. Workers Compensation
Though not technically a tax, most states require workers compensation insurance as soon as you hire your first employee. Rates vary widely depending on your industry, but is typically less than 1% of salary for retail or office jobs.
Read our full workers compensation guide for more information, including price examples for different industries.
4. Sales and Use Tax
If you sell products (or services) to consumers, you generally need to pay sales tax to a local and/or state agency. If you sell to customers out-of-state, then you may be liable for use tax instead of sales tax.
5. Excise Tax
Excise tax— AKA the “sin” tax— is added to certain products deemed harmful to the general public. While alcohol and tobacco are most commonly associated with excise tax, you might be surprised to know tires, fishing poles and vehicle trailers are also among the products subject to the sin tax.
Excise taxes are collected by the federal government, as well as some state, county and local agencies. You’ll have to check with your local tax agency to find what specific taxes you’re liable for, and at what rate.
6. Business Registration
You’ll generally need to obtain a business license with your local (county or city) office before you can open a location. Most states will also charge a fee should you incorporate your business, which is an optional business structure with some tax and legal advantages. Check out our guide to learn more about business structures.
How to Manage State Business Taxes
As you can probably tell already, state business taxes are complicated. When you add federal and local taxes into the mix, figuring out exactly what you need to pay, whom it gets paid to and when it’s due gets all the more complicated.
Now here’s the curveball: Most small businesses do not actually file these taxes themselves. Instead, they rely on software to submit and pay taxes for them. Payroll programs like Gusto can handle your income and SUTA taxes, as well as federal payroll taxes and workers compensation payments. Meanwhile, tax software like Avalara can automatically calculate and pay your sales, use and excise taxes.
These programs do require an extra investment, but it’s often well worth it given the amount of time you’ll save calculating and filling out tax forms— not to mention the potential penalties you can avoid.
The Bottom Line
Since business taxes vary tremendously depending on your location and trade, be sure to consult your CPA or local tax authority to determine which taxes you’re liable for.