If you are thinking of starting a business in Nevada or relocating an existing business here, there are many reasons to do so. You can count on fantastic weather, palm trees, swimming pools, gambling, professional sports teams, 24-hour entertainment…wait, those probably aren’t the main reasons you considered in your business plans. Or maybe they are? We don’t judge. But let’s take a look at some of the major benefits of basing your business in the Silver State, especially in the critical area of corporate taxation.
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Is There a Corporate Tax in Nevada?
There is no corporate income tax in Nevada, which can mean a huge cost savings for your business. Nevada is one of only four states with no corporate or personal income tax. In addition, there are no taxes on corporate shares, no franchise tax, and no personal income tax, so your on-site employees can share in the benefits of your new Nevada location. In addition, there are nominal annual fees, no unitary tax, no estate tax, no inventory or income franchise tax, and no inheritance (or “gift”) tax.
Nevada’s business-friendly environment includes benefits such as minimal state requirements for reporting and disclosure, no minimum requirements for capital in order to form a corporation, shareholder information not included in the public record, and the ability of corporate directors to change bylaws. Also, in Nevada an LLC (Limited Liability Corporation) can be formed by a single individual, so the income from the business is included in that individual’s tax return.
In addition to these benefits, Nevada corporations may also purchase, sell, hold or transfer shares of their own stock and utilize stock for services, capital, real estate, and personal property. Corporate directors can determine the value of any transactions. The state offers a minimal employer payroll tax of 0.7% of gross wages. Deductions may be made for employer-paid health insurance, and there is also Nevada’s Business Court, which is designed to reduce time and cost of commercial litigation by offering a number of business-friendly options based on the Delaware model.
This all sounds good of course, but as with any business-related decision you should consult a tax professional on the intricacies of Nevada tax law and the specifics of doing business in other states. Some things to consider are shareholder and employee locations. If shareholders or employees are not Nevada residents and you are doing a majority of your business outside of the state, you may not be able to take full advantage of these business-friendly Nevada state laws.
What Corporate Taxes Do Businesses Pay in Nevada?
Although Nevada LLCs have one of the lowest tax rates in the country, given there is no individual or corporate income tax, you may still find yourself paying taxes. For example, if your LLC does business outside the state you will still be subject to taxation from other states.
Some Other Considerations
- To do business in a state, your LLC is acknowledging that it earns revenue and may have employees in that state.
- In order to conduct business in another state, your LLC must “qualify” there. Because you would be considered a foreign corporation, the process to qualify in that state is similar to incorporating there.
- Your LLC must register with and pay filing fees to the Secretary of State in any state in which you are doing business, and this may equal or even exceed that of a domestic corporation (or in other words a corporation formed in that state).
- If you fail to register you could be subject to considerable financial penalties.
- Failure to register in a state in which you do business could prevent you from suing anyone in that state.
- There is no contract enforcement if your business is unregistered, so people or organizations that owe money to your business will not be legally obligated to pay the debt.
- Failure to qualify in a particular state may open you up to criminal charges.
- Your tax liability depends on your business activity in any state in which you conduct business.
- Some states may also impose a franchise tax for doing business there.
What are the Rules for Nevada Corporate Tax Filing?
Even if you are not being taxed directly by the Silver State you will still most likely have some tax filing obligations, many of which were noted above. In addition to the obligations you may have by doing business in other states, your legal form also comes into play because businesses are taxed in part based on this important aspect of corporate structure. For example, most states tax a corporation (including sole proprietorships, LLCs, partnerships and S Corporations) as “pass-through entities” which makes them subject to personal income tax.
Even though you are located in Nevada, you might have additional tax liability depending on whether or not you have employees, no matter what corporate structure you form. In the Silver State, if your business has employees and reports wages to the Nevada Employment Security Division (ESD), the business could be subject to the state’s Modified Business Tax (MBT), which is a quarterly payroll tax. As of 2020 the MBT rate is 1.17 percent but this only applies to a relatively high number of employees ($62,500 in a quarter is the threshold so if taxable wages are less than that no MBT must be paid).
Additionally, as noted previously in this article, if you do business in other states the business must be registered in those states and you will be required to pay taxes there. This is sometimes referred to as a “nexus” with these states. Again, make sure to consult a tax professional on what constitutes a “nexus” and what your specific tax obligations might be.
There are many reasons to start or relocate a business in Nevada, as this is one of the most business- and tax-friendly states in the country. However, just like with any major decision you should do your homework and compare apples to apples. Every state in the country has advantages and disadvantages for businesses, but not many can compare to Nevada. And don’t forget to factor in the sunshine!