What type of taxes will you owe on Nevada Business Income?
Nevada is one of four U. S. states without a corporate income or franchise tax. It does not levy any taxes on corporations or require employers to withhold federal payroll taxes. This makes sense because Nevada is a low-tax state, where residents are taxed less than most other Americans. However, there are several types of business taxes that do apply in Nevada.
The first type is called a gross receipts tax. Under this system, every business selling goods or services in Nevada must collect sales tax on those transactions. If a business collects $10,000 worth of taxable revenue, it must remit $1,000 in sales tax. For example, a business earns $5,000 in net profit during the month. The business owes $500 in gross receipts tax.
Another form of business taxation is the use tax. Every business that uses the tangible personal property in Nevada must pay a use tax on that property. Let’s say a hotel purchases a bed frame for $2,000. When the hotel rents out the room, it must pay a use tax equal to 5% of the item’s value. So, the hotel must pay the bed frame $100 in use tax.
The third type of business tax is the unemployment insurance tax. Employers who hire workers must pay into the Unemployment Insurance Trust Fund. These payments go toward benefits paid to Nevadans who lose jobs due to illness, injury or retirement.
Finally, the fourth type of business tax is a modified business tax. Only businesses that employ people are subject to this tax. There are three different rates under this system. First, a flat rate applies to businesses with 10 or fewer employees. Second, a graduate rate applies to businesses with 11 to 50 employees. Finally, a flat rate applies for companies with 51 or more employees.
Nevada doesn’t have an income tax. But it does have a state sales tax. And businesses must pay federal corporate taxes. So what gives? Why do some people think there’s no such thing as a corporation in Nevada?
What is the business tax rate in Nevada?
There are two ways to measure the business tax rate in Silver State: the modified business tax or commerce tax rate. For most companies, the modified business tax applies. However, the commerce tax rate applies if you do over $1 million in annual revenue.
Nevada doesn’t impose a state corporate income tax. Instead, it levies a 2% tax on net profits earned within the state. This is called the “modified business tax.” Companies pay this tax based on how much profit they earn in Nevada.
The modified business tax rate is set by statute. It is determined by dividing the total amount of taxes paid on Nevada operations during the preceding calendar year by the total value of goods sold and services rendered in Nevada during the same period.
For those companies that make over $1 million in gross sales annually, there is another way to calculate the business tax. This method uses a formula known as the commerce tax rate.
If the company makes less than $1 million in annual gross revenues, the commerce tax rate equals 0%.
Nevada Modified Business Tax Rate
The MBT is a payroll tax based on wages. The MBT is calculated by taking the total amount of wages paid during the year and multiplying it by 0.077. This number is known as the modified business tax rate. If you pay less than $62,501 in wages per quarter, no additional taxes are charged.
In 2020, Nevada businesses must file reports detailing how much revenue they earned in the state. This includes income taxes, franchise fees, gross receipts, and property taxes.
The rates for each type of tax vary depending on whether a business is classified as a corporation, partnership, LLC, S-corp, or sole proprietorship. Companies making over $4 million annually must pay a 3% tax on gross receipts and a 2% tax on net profits. Smaller companies that make up to $1 million in annual revenue and don’t owe anything.
For businesses making under $4 million annually, the tax rate is 0%.
Corporate Income Tax Rate in Nevada
The state of Nevada doesn’t have a corporate income tax. Instead, it levies a flat 21% tax on every business. But don’t worry — you’re still subject to federal taxation.
How to Pay Franchise Tax in Nevada
Franchise tax is a fee charged to franchisees when they operate a business under a franchisor’s brand name. Franchises must pay franchise taxes based on the number of employees they employ.
Nevada law requires all franchisees to register annually with the state Department of Business and Industry (DBI), and to pay franchise taxes every quarter.
1. Register With the State
Before starting a franchise business, make sure you register with the state. You can find out if you need to register by visiting the DBI website. Once registered, you’ll receive an annual registration renewal notice.
2. Determine Whether You Need to Pay Franchise Taxes
You may only owe franchise tax if you have employees. To calculate the amount owed, multiply the number of employees by $100 per employee. For example, if you have four employees, multiply 4 x 100 $400.
3. Calculate Franchise Tax Due
Once you know the number of employees you have, you can calculate the amount due. Divide the number of employees by 3,000 to arrive at the monthly rate. Multiply that figure by 12 months to come up with the yearly rate.
4. Report Quarterly Franchise Tax Liability
Every quarter, you must submit a franchise tax return to the DBI. You can download the form here. Be sure to complete the form accurately and promptly. Failure to do so could result in penalties.
5. Pay Franchise Tax When Due
Payment is due within 45 days after the end of the fiscal year. However, if you fail to pay, you’ll face late fees and interest charges.
Frequently Asked Questions
What is a Nevada Corporation?
A Nevada corporation is a business entity that can be formed in Nevada. It has no physical presence in the state, but it does have legal personality and rights under the law. A Nevada corporation must file its articles with the Secretary of State’s office to become an official corporation.
What is the Business Tax Rate in Nevada?
The business tax rate in Nevada is 6.9%. A company with annual revenue of $1,000,000 will pay $69,000 in taxes. The business tax rate in Nevada varies depending on the type of business and its location. For example, if you are running a manufacturing or mining business, your business tax rate will be higher than other businesses.
Which Are the Tax-Free States?
Tax-free states are those that have no state income tax. They include Alaska, Arizona, Florida, Nevada, and Texas. The federal government imposes a 10% withholding on all wages paid to residents of these states. Residents who work in other states must pay taxes on their earnings before they can receive any benefits from the state.
James Rourke is a business and legal writer. He has written extensively on subjects such as contract law, company law, and intellectual property. His work has been featured in publications such as The Times, The Guardian, and Forbes. When he’s not writing, James enjoys spending time with his family and playing golf.
