corporate tax

(noun)

A tax levied on a corporation, especially on its profits; corporation tax

Related Terms

Examples of corporate tax in the following topics:

  • Corporate and Payroll Taxes

    • Two examples of these are corporate and payroll taxes.
    • Many countries impose a corporate tax, also called corporation tax or company tax, on the income or capital of some types of legal entities.
    • Many countries tax all income of corporations organized in the country.
    • These, however, are rarely referred to as "corporate taxes" .
    • Corporations, such as CBS, whose headquarters are pictured above, are subject to multiple forms of tax, from corporate income tax to payroll taxes.

  • Corporate Taxes

    • Corporate taxes are especially complicated because of the inherent complexities of corporations themselves.
    • A C corporation refers to any corporation that is taxed separately from its owners.
    • This income is taxed at a specified corporate tax rate.
    • Some systems have graduated tax rates - corporations with lower levels of income pay a lower rate of tax - or impose tax at different rates for different types of corporations.
    • Corporations are also subject to property tax, payroll tax, withholding tax, excise tax, customs duties and value added tax.

  • Disadvantages of Corporations

    • In many countries, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a separate rate -- double taxation.
    • Suppose the government taxes corporate profits at 30%, then the corporation has to pay $300,000 in taxes.
    • In many countries, corporate profits are taxed at a corporate tax rate, and dividends paid to shareholders are taxed at a separate rate.
    • For example, S corporations in the US do not pay any federal income taxes.
    • The fees and legal costs required to form a corporation may be substantial, especially if the business is just being started and the corporation is low on financial resources.

  • Types of Corporations

    • C corporation refers to any corporation that, under United States federal income tax law, is taxed separately from its owners .
    • A C corporation is distinguished from an S corporation, which generally is not taxed separately.
    • Thus, income is taxed at the shareholder level and not at the corporate level.
    • Payments to S shareholders by the corporation are distributed tax-free to the extent that the distributed earnings were not previously taxed.
    • Also, certain corporate penalty taxes (e.g., accumulated earnings tax, personal holding company tax) and the alternative minimum tax do not apply to an S corporation.

  • Pros and Cons of a Corporation

    • There is also the issue of double taxation, wherein the corporation is taxed on its profits and shareholders are also taxed on their earnings.
    • S corporations are merely corporations that elect to pass corporate income, losses, deductions, and credit through to their shareholders for federal tax purposes.
    • Thus, income is taxed at the shareholder level and not at the corporate level.
    • Payments to S shareholders by the corporation are distributed tax-free to the extent that the distributed earnings were previously taxed.
    • Also, certain corporate penalty taxes (e.g., accumulated earnings tax, personal holding company tax) and the alternative minimum tax do not apply to an S corporation.

  • S-Corporations (S-Corps)

    • S corporations elect to pass corporate income, losses, deductions, and credit through to their shareholders for federal tax purposes.
    • S corporations elect to pass corporate income, losses, deductions, and credit through to their shareholders for federal tax purposes.
    • Certain corporate penalty taxes (e.g., accumulated earnings tax, personal holding company tax) and the alternative minimum tax do not apply to an S corporation.
    • Be an eligible entity (a domestic corporation, or a limited liability company which has elected to be taxed as a corporation)
    • However, certain trusts, estates, and tax-exempt corporations, notably 501(c)(3) corporations, are permitted to be shareholders.

  • Tax Loopholes and Lowered Taxes

    • Tax evasion is the term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means.
    • Tax evasion is the general term for efforts by individuals, corporations, trusts and other entities to evade taxes by illegal means.
    • Rather than W-2 wage earners and corporations, small business and sole proprietorship employees contribute to the tax gap, because there are few ways for the government to know about skimming or non-reporting of income without mounting more significant investigations.
    • Also, in 1998 alone, a total of 94 corporations faced a net liability of less than half the full 35% corporate tax rate and the corporations Lyondell Chemical, Texaco, Chevron, CSX, Tosco, PepsiCo, Owens & Minor, Pfizer, JP Morgan Saks, Goodyear, Ryder, Enron, Colgate-Palmolive, Worldcom, Eaton, Weyerhaeuser, General Motors, El Paso Energy, Westpoint Stevens, MedPartners, Phillips Petroleum, McKesson, and Northrup Grumman all had net negative tax liabilities.
    • Describe the legal and illegal ways individuals and corporations avoid paying some or all taxes owed

  • Federal Income Tax Rates

    • When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax or profit tax.
    • Individual income taxes often tax the total income of the individual, while corporate income taxes often tax net income.
    • Individuals currently pay a lower rate of tax on capital gains and certain corporate dividends.
    • This tax was repealed and replaced by another income tax in 1862.
    • Advance payments of tax are required in the form of withholding tax or estimated tax payments.

  • Corporations

    • Corporations are large organizations that can raise a substantial amount of financial capital.Consequently, a corporation has financial resources to enter foreign countries and dominate international trade.Furthermore, it creates special departments that employ specialists in law, taxes, finance, and accounting, who handle operations for foreign countries.Advantages of thecorporate form include:
    • Stockholders do not have a mutual agency relationship, where the stockholders cannot bind a corporation to contracts.Stockholders have no say in the daily operation of the corporation even though they own the corporation.
    • Corporations have two disadvantages.First, government heavily regulates corporations.Corporations file many reports with government because corporations can expand into many countries, markets, and industries.Corporations may encourage regulations because bureaucratic red tape creates barriers to entry.Thus, new companies experience troubles entering the market with complex and arduous regulations.Second, government imposes taxes twice on corporations.Corporations pay taxes from their profits.Then stockholders receive profit from the corporation as dividends, and the dividends become income to the stockholder that a government also taxes.
    • Corporations can use subsidiaries to avoid regulations or avoid taxes.For instance, a parent corporation could relocate to the Bahamas or Cayman Islands.These countries are tax havens with low taxes, little regulations, and strong confidentiality laws.Consequently, corporations can shift assets and liabilities among subsidiaries to decrease their overall tax burden.At this point, we clarify some tax terminology.Tax evasion is a person or corporation owes a government for taxes, but refuses to pay it.Some activity created the tax liability, and the law requires them to pay taxes.Otherwise, government can assess fines or send the tax evaders to prison.However, corporations can use tax avoidance because they can afford to hire specialists.Tax avoidance is the managers careful plan the corporate activities and prevent the creation of tax liabilities.
    • Dividing line between tax evasion and avoidance can be a thin one.Since the 2007 Great Recession is still impacting the world economy in 2013, some tax authorities penalize and fine companies that use tax avoidance.Unfortunately, tax collections are down, and many governments are becoming aggressive in tax collections.For example, Italian tax inspectors board yachts as they dock in Italian ports.Italian yacht owners registered their yachts in the Cayman Islands, avoiding registration fees and avoiding the VAT fuel taxes.Consequently, theItalian ports reported 40% declines in yacht docking as the yacht owners avoid Italy's ports.Unfortunately, the economies around the ports suffer from fewer customers, who shop and eat in the local communities, which could further depress tax revenues.

  • Financing State and Local Government

    • Taxes are the primary source of revenue for state and local governments; income, property, and sales taxes are common examples of state and local taxes.
    • Income taxes are taxes imposed on the net income of individuals and corporations by the federal, most state, and some local governments.
    • State taxes are generally treated as a deductible expense for federal tax computation.
    • Sales tax is collected by the seller at the time of sale, or remitted as use tax by buyers of taxable items who did not pay sales tax.
    • Property tax rules and rates vary widely.