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Home » Taxes in North Dakota: Business Tax for LLC

Taxes in North Dakota: Business Tax for LLC

 

 

North Dakota has a progressive income tax system. There are four brackets: 0% up to $10,000; 3% above $10,000 up to $50,000; 5% above $50,000 up to $100,000; and 9% above $100,000. The state does not levy sales taxes.

The highest tax bracket is 2,900, which comes out to about $1,000 per person per year. The lowest tax bracket is zero.

What type of taxes will you owe on North Dakotan business income?

Business owners are often confused about how much state and local taxes they’ll owe on their business income. In fact, most states tax at least some business income, including corporation and personal income. But some states don’t tax any form of business income. And even within the same state, different taxing jurisdictions impose varying rates and forms of taxation. So it pays to know where you’re doing business.

The good news is that many states charge a flat rate of 1% on certain types of business income, such as corporate income and personal income, regardless of taxable income. This is called “uniform” taxation. For example, New York charges a uniform rate of 8.97% on corporate income, regardless of whether the corporation earned $1 million or $10 billion. Another common type of uniform tax is the sales tax. Sales tax rates vary widely among states, ranging from no sales tax at all to 7% or more.

In addition to uniform taxes, some states charge additional taxes on specific types of business income. These include franchise fees, gross receipts taxes, property taxes, use taxes, and excise taxes. Generally speaking, the higher your taxable income, the greater percentage of your business income will be subject to additional taxes.

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For instance, Ohio imposes a 3.5% franchise fee on all businesses, except those engaged in interstate commerce, whose total annual gross receipts exceed $500,000. If your business earns less than $500,000 per year, you won’t have to pay the franchise fee. However, if your business earns over $1 million per year, you must pay the franchise fee.

Another type of business income tax is the gross receipts tax. Gross receipts taxes apply to businesses that sell goods or services to consumers. They can range anywhere from zero to 10% of the amount charged for each sale. A few states, like Colorado, do not tax gross receipts. Other states, such as Maryland, impose a 4% gross receipts tax on retail stores, restaurants, and bars.

Property taxes are another type of business income tax. Property taxes depend on the value of the real estate owned by the taxpayer. Businesses located in urban areas usually pay higher property taxes than rural businesses. Property taxes also vary widely across states.

Use taxes are imposed on the privilege of using tangible personal property. Use taxes generally apply to items used in connection with commercial activity, such as machinery, vehicles, office equipment, and computers. Use taxes also vary widely across the United States.

 

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Corporations

A corporation is a legal entity that exists separately from its owners. A corporation is usually formed under one of three types of laws: general partnership law, limited liability companies, and subchapter S corporations.

A corporation is subject to taxation just like any individual or organization. However, unlike individuals, corporations do not file taxes themselves; rather, they report their earnings to the IRS.

The Internal Revenue Service (IRS) classifies corporations into four categories:

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• Sole Proprietorship – This is the most common form of business ownership. In a sole proprietorship, the owner files a personal return reporting his/her taxable income.

• Partnership – Partnerships are similar to sole proprietorships except that partners must file a joint return.

• Subchapter S Corporation – These are pass-through businesses where profits flow directly to shareholders without being taxed again.

• Limited Liability Company – These are separate legal entities that allow members to limit their personal liability. Members are responsible for paying federal and state taxes on their share of the profits.

Note on Multistate Businesses

The IRS recently updated its guidance on nexus, or the connection between a taxpayer and a state or foreign jurisdiction. This update clarifies how multistate businesses are taxed. Here are some key points:

1. If you do business in multiple locations, you can pay income tax on profits earned in each location. However, you still only owe taxes on the net profit earned in one place.

2. You don’t have to file separate returns in every state where you conduct business. Instead, you can combine all of your state returns into one federal return.

3. You can deduct expenses incurred in one location even though you didn’t earn enough money there to qualify for the deduction.

4. Your home state doesn’t always determine your tax liability. In fact, your home state might not even apply to certain types of businesses.

 

 

Frequently Asked Questions

What taxes do you pay in North Dakota

1. Sales Tax

Sales tax is charged at 6% on all purchases unless otherwise stated. In addition to sales tax, there may be additional local taxes charged by cities and counties.

2. Use Tax

Use tax is charged on items purchased out-of-state and brought back into the state. There is no use tax on food products grown in North Dakota.

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3. Property Tax

Property tax varies based on location and property size. A standard home assessed at $100,000 would have a property tax rate of approximately $200 per year.

4. Income Tax

Income tax rates vary depending on income level. Individuals earning less than $50,000 annually pay 0%, while individuals making over $250,000 annually pay 15%.

5. Franchise Tax

Franchise tax is imposed on corporations doing business in North Dakota. Corporations paying franchise tax include banks, insurance companies, utilities, telephone companies, railroads, and trucking firms.

Is franchise tax different than income tax?

Franchise Tax

The Franchise Tax (FT) is imposed upon corporations doing business in Ohio. A corporation’s taxable income includes its gross receipts minus certain deductions. Gross receipts are defined as the total amount received from selling goods or services. Deductions are allowable only if they relate directly to the production of income.

Income Tax

An individual’s taxable income includes his/her gross receipts less certain deductions. Gross receipts include wages, salaries, tips, commissions, royalties, dividends, interest, rents, gains from the sale of property, pensions, annuities, unemployment insurance benefits, alimony payments, child support payments, gifts, inheritances, prizes, awards, and any other amounts received as compensation for personal services performed.

Deductions are allowable only for expenses incurred in producing income. Examples of deductible expenses include rent paid to a landlord; medical bills; taxes paid to state and local governments, charitable contributions; mortgage interest paid; utilities; car repairs; and legal fees.

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