Most states tax at least some types of business income derived from the state. As a rule, the details of how income from a specific business is taxed depend in part on the business’s legal form; more particularly, in most states corporations are subject to a corporate income tax, while income from “pass-through entities” such as S corporations, limited liability companies (LLCs), partnerships, and sole proprietorships is subject to a state’s tax on personal income. Tax rates for both corporate income and personal income vary widely among states; corporate rates, which more often are flat regardless of the amount of income, generally range from 4% to 9%, and personal rates, which generally vary depending on the amount of income, can range from 0% (for small amounts of taxable income) to around 9% or more in some states.
Currently, four states (Nevada, South Dakota, Washington, and Wyoming) do not have a corporate income tax, and the same four states, along with Alaska, Florida, and Texas, have no personal income tax. Individuals in New Hampshire and Tennessee are only taxed on interest and dividend income.
Apart from taxing business income through a corporate income tax or a personal income tax, many states impose a separate tax on at least some businesses, sometimes called a “franchise tax” or “privilege tax.” This is frequently defined as a tax simply for the right or “privilege” of doing business in the state. As with state taxes on business income, the specifics of a state’s franchise tax often depend in part on the legal form of the business. Franchise taxes are generally either a flat fee or an amount based on a business’s net worth.
As just mentioned, Nevada is one of four states that have neither a corporate income tax nor a personal income tax. This does not mean, however, that no Nevada business has to pay any important state taxes at all. More particularly, any businesses that have employees and report gross wages to the Nevada Employment Security Division (ESD) are subject to the state’s modified business tax (MBT). In other words, most Nevada businesses with employees are subject to the MBT.
The Nevada Department of Taxation more specifically describes the MBT as a quarterly payroll tax. The tax is due on the last day of the first month following the end of a payroll quarter. For example, for the quarter running from July 1st to September 30th, the return and payment are due on October 31st. Your business will be automatically registered for the MBT when it registers with the Employment Security Division. The ESD will then start sending your business the MBT tax returns. (Note: your registration for the MBT is with the Department of Taxation, not the ESD.)
For purposes of the MBT, gross wages are defined as total wages paid by an employer during a calendar quarter including tips. (The amount should match up with the amount you list on the appropriate ESD form in relation to unemployment compensation reporting.)
The MBT rate is 1.17%. However, the MBT is assessed for a given calendar quarter only if taxable wages for that quarter exceed $62,500, as follows:
In short, in Nevada, unlike many other states, the legal form of your business is not so important for determining how—or if—your business is taxed by the state. Instead, the more important issue in Nevada is whether your business has employees.
As a final point, be aware that there are other state and local taxes that can affect certain businesses, including taxes that may be related to revenue. As a key example, the state effectively assesses a gaming tax by requiring licenses for businesses that operate games. The rates for these licenses range from 3.0% to 6.25% of monthly gross gaming revenue, plus a wide range of additional fees based on the number of games operated by the licensee.
Note on Multistate Businesses and “Nexus”
Our primary focus here is on businesses operating solely in Nevada. However, if you’re doing business in several states, you should be aware that your business may be considered to have “nexus” with those states, and therefore may be obligated to pay taxes in those states. The rules for taxation of multistate businesses, including what constitutes nexus with a state for the purpose of various taxes, are complicated. If you run such a business, you should consult with a tax professional.
For further guidance on Nevada’s modified business tax, check the Department of Taxation website, and for guidance on the gaming tax, check the State Gaming Control Board website. For information on business-related taxes in other states, check Nolo’s 50-State Guide to Business Income Tax. And, if you’re looking for detailed guidance on federal income tax issues, check Tax Savvy for Small Business, by Federick Daily (Nolo).