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In addition to federal corporate income taxes, many corporations are subject to a corporate state tax based on the location of an office or branch of the corporation. In the United States, 43 of the 50 states in the union charge an income tax for corporations that do business in that state. State income taxes are imposed on top of federal income corporate income taxes and often result in a much higher tax liability for corporations doing business in a state that does charge a corporate income tax. In addition to state income taxes some cities or municipalities also impose income taxes on corporations as well.
Because income tax rates for corporations vary from state to state and city to city, corporate income taxes issues can become very complicated when a corporation does business in several tax jurisdictions or in several states. Furthermore, multiple state taxes can also affect consumer pricing as well as dictate if a corporation chooses to do business in a particular state or locality or not.
Corporations and Multiple Tax Jurisdictions
When a corporation does do business in several different states, several different cities, or multiple different tax jurisdictions the corporation is subject to taxes in all of the areas where it does business.
For example, if a Corporation is in the business of manufacturing and selling widgets, and if the corporation sells widgets at various branch locations or sale outlets, the corporation will be responsible for income from sales based on the location of a particular branch or sales outlet. If the widget company has branches in Miami Florida, Atlanta Georgia and Los Angeles California, the corporation will be responsible for paying income taxes to all three of those state and local tax jurisdictions.
For sales that are made out of the Miami Florida branch, the corporation will need to pay income tax on profits that are result from sales made in that location. Of course, the same goes for sales made in the other jurisdictions as well. Therefore, you can see where companies that have locations in multiple tax jurisdictions will often have very complicated tax reporting issues to contend with.
Shipping Products across State Lines
One way that corporations try to avoid the added expense of paying state income taxes is by shipping products to customers located out of state. By shipping purchase products to customers that reside or do business in another state, the corporation can sometimes effectively eliminate paying some income taxes to the state where the shipment originated.
Most states only charge income tax or levy sales taxes on items that were bought and sold inside that particular state. While there are exceptions to this rule, it is a common practice of corporations to avoid many local taxes by shipping products out of their home state. However, regardless of state or local income or sales taxes that may be avoided by using this method, it offers no protection at all from federal income tax liability for the corporation.
