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 and Florida currently 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 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.
West Virginia has a corporation net income tax but no franchise or privilege tax. (A former franchise tax was phased out as of 2015.) Thus, for the most part, unless your business is a traditional corporation (a C corporation), your business itself will not be subject to a state tax on income or net worth. However, if income from your business passes through to you personally, that income will be subject to taxation on your personal state tax return.
West Virginia's corporation net income tax applies to traditional (C-type) corporations. For 2018, the tax is assessed at a flat rate of 6.5%. The tax is based on federal taxable income derived from West Virginia. Corporation net income tax returns are due on the 15th day of the fourth month after the close of the tax year. For companies whose tax year corresponds with the calendar year, this means returns are due on April 15th. For purposes of comparison, note that West Virginia taxes personal income at marginal rates ranging from 3% to 6.5%.
In addition, most pass-through entities – like S corporations, LLCs, and partnerships – are required to file an informational return with the state (Form SPF-100).
Let's briefly look at additional details for five of the most common forms of West Virginia business: corporations (i.e., C corporations), S corporations, LLCs, partnerships, and sole proprietorships.
West Virginia corporations are subject to West Virginia's corporation net income tax.
Example: For the 2018 tax year, your West Virginia corporation had taxable income of $400,000. Other things being equal, your corporation will owe West Virginia corporation net income tax in the amount of $26,000 (6.5% of $400,000).
An S corporation is created by first forming a traditional corporation, and then filing a special form with the IRS to elect S status; unlike a traditional corporation, an S corporation is not subject to separate federal income tax. Rather, taxable income from an S corporation is passed through to the individual shareholders, and each individual shareholder is subject to federal tax on his or her share of the corporation's income; in other words, S corporations are pass-through entities. (Note that a shareholder's share of the S corporation's income need not actually be distributed to the shareholder in order for the shareholder to owe tax on that amount.) West Virginia does not require S corporations to pay income tax. However, each individual S corporation shareholder will owe state tax on his or her share of the company's income.
Example: For the 2018 tax year, your West Virginia S corporation had taxable income of $400,000. The corporation must file Form SPF-100 with the state. The corporation's net income will be allocated to you and your fellow shareholders, and you will each pay tax on your own portions on your individual state tax returns. Each shareholder's rate will vary depending on his or her overall taxable income for the year.
Standard LLCs are pass-through entities and generally are not required to pay income tax to either the federal government or the State of West Virginia. However, LLCs are required to pay West Virginia's business franchise tax. In addition, income from the LLC is distributed to individual members, who then pay federal and state taxes on the amounts allocated to them.
Also note that while, by default, LLCs are classified for tax purposes as partnerships (or, for single-member LLCs, disregarded entities), it is possible to elect to have your LLC classified as a corporation. In that case, the LLC would also be subject to West Virginia's corporation net income tax.
Example: For the 2018 tax year, your multi-member LLC, which has the default tax classification of partnership, had taxable income of $400,000. The LLC must file Form SPF-100 with the state. The LLC's net income will be allocated to you and your fellow members, and you will each pay tax on your own portions on your individual state tax returns. Each member's rate will vary depending on his or her overall taxable income for the year.
Partnerships are pass-through entities and generally are not required to pay income tax to either the federal government or the State of West Virginia. However, partnerships are required to pay West Virginia's business franchise tax. In addition, income from the partnership is distributed to individual partners, who then pay federal and state taxes on the amounts allocated to them.
Example: For the latest tax year, your partnership had net income of $400,000. The partnership must file Form SPF-100 with the state. The partnership's net income will be allocated to you and your fellow partners. You will each pay tax on your own portions on your individual state tax returns. Each partner's rate will vary depending on his or her overall taxable income for the year.
Income from your business will be distributed to you as the sole proprietor, and you will pay tax to the state on that income. No business entity tax is due.
Example: For the latest tax year, your sole proprietorship had net income of $100,000. The $100,000 in net income is distributed to you personally, and you pay tax on that income on your individual federal and state tax returns.
Our primary focus here is on businesses operating solely in West Virginia. 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. Also, if your business was formed or is located in another state, but generates income in West Virginia, it may be subject to West Virginia 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, you should consult with a tax professional.
For further guidance on West Virginia's corporation net income tax and business franchise tax, check the West Virginia Department of Revenue. 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).
Updated: June 18, 2018