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Overview of Montana State Franchise Taxes

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Montana doesn’t have a state income tax, property tax or sales tax. Instead, residents pay federal income tax, local property taxes, and school district taxes.

Montana’s highest marginal income tax rate is 7.45%, while the lowest is 4%. In addition, there is no estate tax.

Property taxes range from $0 to $2,500 per parcel. School districts vary widely in terms of the amount of property tax paid. Some school districts levy up to $1,200 per parcel. Others charge less than $100.

What kind of taxes will you owe on Montana Business Income?

In most cases, businesses pay taxes based on where they earn money. If you run a corporation, it makes sense to keep profits in the state where you do business. However, suppose you operate a small business out of your home. In that case, you might want to consider moving your personal residence into a different state, such as Montana, to take advantage of lower property taxes. You can still use your home address to file your taxes, but you won’t be subject to local sales or property taxes.

The following table outlines the differences between taxing jurisdictions in Montana:

Corporate Income Tax

Montana does not impose a corporate income tax. However, companies incorporated in another state may be required to pay a franchise tax. This tax is imposed on every person or entity doing business in Montana.

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Partnership Gross Receipts Tax

A partnership is taxed like a corporation. A partnership must file Form 1065, IRS Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc., with the Internal Revenue Service.

LLCs

Corporations

A corporation is a legal entity used to raise capital and conduct business activities. Unlike individuals, corporations cannot exist without permission from government officials. They are formed under state laws and governed by rules set forth by those states. In most cases, corporations are required to pay taxes.

An S Corporation does not pay federal or state income taxes. Instead, it files paperwork with the IRS and reports its earnings on Schedule K-1 forms. This allows shareholders to claim losses against their individual incomes.

Standard Limited Liability Companies (LLCs) do not pay federal or state taxes either. However, they are still considered separate entities from their owners. This means that they are subject to taxation like regular businesses.

Partnerships are different because multiple people own them. Each partner owns a percentage of the partnership and is responsible for paying their portion of the taxes owed.

Note on Multistate Businesses in Montana

You may owe tax in other states if you operate a multistate business. And if you’re like most small businesses, you probably haven’t even considered whether you are subject to income taxation in those jurisdictions. But you might want to think twice.

The Internal Revenue Service requires every corporation doing business in more than one state to file Form SS-4, “Application for Employer Identification Number,” with each state where it operates. This form must include the taxpayer’s name, address, principal place of business, number of employees, and the type of business conducted.

But what happens if you operate a multistate business without knowing it? You could end up owing taxes in more than one jurisdiction, says Michael J. Keatinge, partner at law firm DLA Piper LLP US. In fact, he says, many small businesses do just that.

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“Many small businesses aren’t aware that they are required to report their activities in multiple states,” Keatinge explains. “They often assume that because they are incorporated in Delaware, they are exempt from filing forms in other states.”

That assumption isn’t necessarily true. For example, if you run a multistate business out of your home office, you may owe sales tax in some states but not others. Or if you own property in several states, you may owe property tax in some of them while being exempt from property tax in others.

In addition, Keatinge points out, there are certain types of companies that are generally assumed to be subject to tax in multiple states.

So how does a business owner find out if she owes tax in multiple states? There are three ways. First, she can check her state department of revenue Web site to see if she needs to file returns. Second, she can contact the state agency responsible for collecting taxes owed. Third, she can consult a legal professional familiar with the nexus rules.

 

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Filing and Payment Options

There are several ways to file and pay taxes. You can use a paper form, download a free electronic version, or go online and pay electronically. This guide explains how you can do each one.

Paper Forms

You can submit a paper Form 1040EZ, 1040A, 1040 Schedule K-1, or 1065-B to the IRS. If you choose to file a paper return, make sure you meet the filing deadline.

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Electronic Filing

If you prefer to avoid the hassle of mailing in a paper return, you can efile. To learn about the different options available to you, see Electronic Filing.

Payment Options

The IRS offers many payment methods, including checks, money orders, bank drafts, and ACH debit cards. For information on making payments, see Making Payments.

Penalties and Interest

Montana has many different kinds of taxes, including alcohol, cigarettes, and telephone service. These taxes cover various industries, including health care, retail, hospitality, and even marijuana. There are many different ways for businesses to pay these taxes, based on the industry. Some companies choose to use cash, while others use credit cards. Others use check payments or online payment methods like PayPal.

 

 

Frequently Asked Questions

How Income Taxes Are Calculated

Income taxes are calculated based on your income and the tax you pay. The federal government has two types of payment: wages, the money you earn for working, and business profits, which is money made from a company or other organization.

What tax laws apply to a Montana business

Income tax applies to all businesses in the state of Montana, including sole proprietorships and partnerships. The rates for individuals are set by the state government, while corporations must pay federal taxes on their profits.

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