Perhaps the most technically complicated area of business law is the topic of taxes. The tax responsibility of an enterprise and its owners arises from many sources and in many ways. It is in this domain, then, that a business must work in tandem with its lawyer, its accountant, its bookkeeper, its banker, and its investment advisor to remain in compliance with all the applicable tax laws, rules, and regulations and to plan for that compliance in an effective, efficient, and economical manner for the business.
There are many sources of tax liability on a business. And let us not just consider taxes only -there are filing fees, permits, and ongoing reporting charges, all of which may affect a company’s bottom line.
The sources are basic enough – local, state, and federal governments. And, there are regional taxe agencies, too, such as water management districts.
Onward then to the types of taxes. There are federal income taxes, which can be applied at the business entity level and/or at the owner level. That is why when corporations are formed, the founders need to consider whether to operate as C corporations where income is taxed at both the corporation and the shareholder levels or elect to be S corporations, where income is taxed at only the shareholder level. The federal income tax system is currently a progressive system which imposes increasingly higher percentages of income tax due in designated marginal tax brackets. Florida also imposes a corporate and business entity income tax, but not an individual income tax.
Employers are often involved in their employees’ tax obligations through payroll tax, Social Security, Medicare, and unemployment compensation obligations, which can either occur by a match with the employees or can be limited to the employer.
One federal tax obligation related to employers is derived from the Patient Protection and Affordable Care Act, which can require businesses or individuals to pay additional taxes or penalties in certain instances depending upon the requirements to offer health insurance coverage to employees and other company stakeholders.
The federal government imposes a variety of consumable or use-related excise taxes. One common excise tax is on gasoline. Florida and its localities also add to it. And Florida also charges tariffs on a number of internationally sourced goods.
Businesses are also subject to paying and collecting state sales tax on the goods and they buy and sell. Consumers certainly see sales taxes on many of their in-state purchases, and use taxes on certain out-of-state purchases.
Local governments impose a variety of fees and charges on companies that operate within their jurisdiction. For example, a business needs to pay an occupation tax to operate. Landlords need to obtain permits. Many enterprises need to pay inspection fees of several kinds – such as restaurants and gas stations – which can arise at the local and state levels.
Some taxes are transactional in nature. When real estate is bought, sold, or financed documentary tax needs to be paid, and when the purchase is collateralized by real estate an additional nonrecurring intangible tax is due. These are collected locally and revenue-shared with the state.
To say the above is just a taste is true. To say the variety of business taxes out there is enormous is an understatement. And to say that the universe of business taxes is complicated goes without saying,. A short article like this cannot properly catalogue all the types or requirements of tax systems to which an enterprise is exposed.
The impact on businesses and their customers – whether the underlying enterprise is involved with the creation of goods, the delivery of services, or hybrids of both – is quite technical. Timing is one such matter. The recognition of revenues for income tax purposes can be based upon whether a company keeps its books on a cash or on an accrual basis. This choice, in turn can lead to timing decisions for tax recognition, payment, or deferral purposes. And, in certain situations, to legitimate reductions or avoidance through deductions or credits.
Taxes are political in nature. They can emerge, disappear, and evolve depending on the political environment. One timely example is the ongoing debate about whether the federal income tax should remain largely as-is or whether it should be replaced by a flat tax system.
The next time, we will consider buying a business.
For more information, call Philip N. Kabler, Esq. of the Gainesville, FL office of Bogin, Munns & Munns, and P.A. at (352) 332-7688, www.boginmunns.com/gainesvillelawoffice, where he practices in the areas of business, real estate, banking, and equine law.
NOTICE: The article above is not intended to serve as legal advice, and readers should not rely on it as such. It is offered only as general information. Readers should consult with an attorney regarding their legal matters, as every situation is unique.
By Philip N. Kabler, Esq.
Bogin, Munns & Munns, P.A.