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. 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 most often are flat regardless of the amount of income, generally range from roughly 4% to 10%. 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, six states—Nevada, Ohio, South Dakota, Texas, Washington, and Wyoming—do not have a corporate income tax. However, four of those states—Nevada, Ohio, Texas, and Washington—do have some form of gross receipts tax on corporations. Moreover, five of those states—Nevada, South Dakota, Texas, Washington, and Wyoming—as well as Alaska, Florida, and Tennessee currently have no personal income tax. Individuals in New Hampshire 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 tax is frequently justified as a tax simply for the 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.
Florida is like most states in that it has a corporate income tax, but unlike many states, it doesn't have any franchise or privilege tax generally applicable to businesses. Moreover, as mentioned above, Florida doesn't have a personal income tax. So, for the most part, unless your business is a traditional corporation (a C corporation), neither your business's income nor its net worth will be subject to state taxation. More particularly, and unlike those many other states that have a personal income tax, if income from your business passes through to you personally, that income will not be subject to taxation on your personal state tax return. Thus, in terms of taxes, it can be advantageous to form your business as an S corporation, LLC, partnership, or sole proprietorship rather than a regular C corporation.
Florida corporate income is taxed using one of two methods:
A Florida corporation is required to use whichever method results in the higher tax for the corporation. Regardless of which method applies in a given case, $50,000 of net income is exempt. (This amount has been the same for many years but is always subject to change.)
Payment of the corporation net income tax is due on May 1st if the corporation's tax year is the same as the calendar year. Otherwise, the return is due on 1st day of the fifth month after the close of the corporation's tax year.
Florida also has special rules for certain LLCs. If a corporation is a member of a multi-member LLC classified as a partnership for federal and state tax purposes, the LLC must file Florida Form F-1065 and the corporation must file a Florida corporate income tax return. Similarly, if a corporation directly or indirectly owns a single-member LLC classified as a disregarded entity for federal tax purposes, the corporation must file Florida Form F-1120 reporting both its own income and the income of the single-member LLC.
Here's a brief look at additional details for five of the most common forms of Florida business: corporations (C corporations), S corporations, LLCs, partnerships, and sole proprietorships.
Florida corporations are subject to Florida's corporate income tax. There are two different methods to compute this tax, and the corporation is required to use whichever method results in the higher tax. For 2022—and many prior years—the first $50,000 of income is exempt.
If a corporation owes more than $2,500 in Florida corporate income tax annually, it must make estimated tax payments on Form F-1120ES. The estimated tax payments are due on the last day of the 4th month, the last day of the 6th month, the last day of the 9th month, and the last day of the corporation's tax year.
Standard LLCs are usually pass-through entities that are not required to pay income tax to either the federal government or the State of Florida. Instead, income from the business is distributed to individual LLC members, who then pay federal taxes on the amount distributed to them. Because Florida has no personal income tax, typical Florida LLC members are not required to pay tax to the state on their income from the LLC.
As discussed above, multi-member LLCs classified as partnerships for tax purposes that have a corporation as a member, and single-member LLCs classified as disregarded entities that are directly or indirectly owned by a corporation, are subject to special state filing requirements.
Also, while by default LLCs are classified for tax purposes as either partnerships or disregarded entities, it is possible to elect to have your LLC classified as a corporation. In that case, the LLC would be subject to Florida's corporate income tax.
Income from partnerships is distributed to the individual partners, who then pay federal tax on the amount distributed to them. Because Florida has no personal income tax, partners are not required to pay tax to the state on their income from the partnership.
Income from your business will be distributed to you as the sole proprietor, and you will pay federal tax on that income. Because Florida has no personal income tax, you are not required to pay tax to the state on your income from the sole proprietorship.
The primary focus here is on businesses operating solely in Florida. If you're doing business in several states, your business might be considered to have nexus with those states and, therefore, might be obligated to pay taxes in those states. Also, if your business was formed or is located in another state but generates income in Florida, it might be subject to Florida taxes. 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, consult with a tax professional.
For further guidance on Florida's corporation net income tax, check the Department of Revenue 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 Frederick Daily (Nolo).
Updated February 8, 2022