In addition to paying federal income tax, your business will also likely have to pay state income taxes. The type of state income tax your business pays varies according to the legal structure of your business. For example, in many states, sole proprietor and partnership business owners pay individual income taxes on their business’ profits. In businesses with LLC or corporate status, corporate or business tax rates apply, and the owners may also have to pay individual income tax.

For most home-based and small business owners, only the individual income tax rate will apply. These rates are lower than federal income tax rates, and after deductions, may only apply to a very small amount of your small business income.

The following is a list of states and their individual and corporate income tax rates.

State                                                   Individual rates               Corporate rates

Alabama                                                 2 to 5 percent                               6.5 percent

Alaska                                                     None                                              1 to 9.4 percent

Arizona                                                   2.59 to 5.94 percent                   6.968 percent

Arkansas                                                1 to 7 percent                                1 to 6.5 percent

California                                               1 to 9.3 percent                            8.84 percent

Colorado                                                 4.63 percent                                4.63 percent

Connecticut                                            3 to 6.5 percent                          7.5 percent

Delaware                                                2.2 to 6.95 percent                     8.7 percent

Florida                                                    None                                             5.5 percent

Georgia                                                   1 to 6 percent                              6 percent

Hawaii                                                    1 to 11 percent                             4.4 to 6.4 percent

Idaho                                                      1.6 to 7.8 percent                        7.6 percent

Illinois                                                    5 percent                                      9 percent

Indiana                                                   3.4 percent                                  8.5 percent

Iowa                                                        0.36 to 8.98 percent                 6 to 12 percent

Kansas                                                    3.5 to 6.45  percent                   4 percent

Kentucky                                                2 to 6 percent                            4 to 6 percent

Louisiana                                                2 to 6 percent                           4 to 8 percent

Maine                                                      2 to 8.5 percent                        3.5 to 8.93 percent

Maryland                                                2 to 5.5 percent                        8.25 percent

Massachusetts                                       5.3 percent                                8.25 percent

Michigan                                                 4.35 percent                              4.95 percent

Minnesota                                              5.35 to 7.85 percent                 9.8 percent

Mississippi                                             3 to 5 percent                            3 to 5 percent

Missouri                                              1.5 to 6 percent                            6.25 percent

Montana                                             1 to 6.9 percent                              6.75 percent

Nebraska                                            2.56 to 6.84 percent                     5.58 to 7.81 percent

Nevada                                               None                                                 None

New Hampshire                               None*                                               8.5 percent

New Jersey                                        1.4 to 8.97 percent                       9 percent

New Mexico                                     1.7 to 4.9 percent                           4.8 to 7. 6 percent

New York                                         4 to 8.97 percent                            7.1 percent

North Carolina                                6 to 7.75 percent                           6.9 percent

North Dakota                                  1.84 to 4.86 percent                     2.1 to 6.4 percent

Ohio                                                 0.587 to 5.925 percent **            None **

Oklahoma                                       0.5 to 5.50 percent                        6 percent

Oregon                                            5 to 11 percent                                 6.6 to 7.6 percent

Pennsylvania                                 3.07 percent                                    9.99 percent

Rhode Island                                 3.75 to 5.99 percent                       9 percent

South Carolina                              0 to 7 percent                                  5 percent

South Dakota                                None                                                 None

Tennessee                                      6 percent***                                    6.5 percent

Texas                                              None                                                 None ****

Utah                                               5 percent                                          5 percent

Vermont                                        3.55 to 8.95 percent                       6 to 8.5 percent

Virginia                                          2 to 5.75 percent                             6.5 percent

Washington                                   None                                                 None

Washington D.C.                         4 to 8.5 percent                               9.9975 percent

West Virginia                               3 to 6.5 percent                               8.5 percent

Wisconsin                                     4.6 to 7.75 percent                         7.9 percent

Wyoming                                       None                                                None

* New Hampshire levies an 8.5 percent tax on businesses with gross income over $50,000.

** Ohio levies a commercial activity tax on certain businesses.

*** Tennesssee’s tax is on dividends and interest income only.

**** Texas imposes a franchise tax on businesses with revenues of $1 million or greater.

Pay as You Go

Remember that income taxes for small businesses are paid quarterly, and that waiting until the end of the year could leave you with a large tax bill, including penalties. When starting your small business, or when you begin making enough money to garner the attention of tax authorities, get a tax identification number and begin making quarterly tax payments to comply with the law.

Use taxes

In addition to income taxes, many states charge use taxes on items purchased from outside the state. Online purchases have become a huge sticking point with states, as the proliferation of e-commerce and

sales tax free selling has depleted states of revenue. While individuals can get away with ducking the use tax, businesses can’t. Businesses who purchase items (office supplies, furniture, etc.) online should be sure to pay the use tax, as failure to do so may trigger an audit.

Hire a professional

Most  small business owners don’t have the time or the know-how to negotiate the morass of state and federal income tax rules on their own, at least not when they first get started. For your first year of operations, seek the help of a tax professional, but insist on seeing the forms he or she used to file your taxes and ask plenty of questions about the process. If you’re running a small, home-based business, you’ll probably be able to handle taxes on your own, but in the beginning it helps to have a pro guide you through what’s necessary to comply with the law and what deductions are available to you. Larger businesses may want to continue using a tax professional, particularly ones with many potential deductions.