In recent years, many owners have been increasingly moving a business to Nevada. There are several reasons for this, but the primary reason is the perception that Nevada has no income tax.
While this is true at the individual level, tax requirements affecting businesses should be considered before moving a business. Other important factors include the form of the venture and its treatment for tax purposes.
Nevada Property and Sales Tax
Nevada has no personal state income tax, but just as in other states, Nevada has property tax and sales tax. Business owners looking to reduce their tax bill should compare the amount of their current state’s taxes with those in the area of Nevada to which they intend to relocate.
Each county in Nevada has its own sales tax rate (for example, Clark County has a sales tax rate of 8.375%). The state property tax is about 0.53%, but additional property taxes – capped at 3% per year – can be added based on the property’s location.
Nevada Business Taxes
Nevada also doesn’t have a state corporate income tax. However, there are three taxes to be aware of that may affect businesses in Nevada.
1. Unemployment Taxes on Employee Wages
Unemployment taxes must be paid for wages of employees paid in Nevada. The base unemployment tax rate is 2.95%, but certain experience factors adjust it.
The rate applied on the wage base in Nevada is much higher than in other states or federally. For 2022, the wage base is $36,600. The business, not the employee, pays the payroll tax.
2. Modified Business Tax
The tax rate is 1.378% of the excess wages paid in a quarter over $50,000. Several adjustments may be made to this calculation.
The modified business tax is effectively a payroll tax as well. Even if a company does not meet the threshold, a Modified Business Tax return must be filed quarterly.
3. Commerce Tax
Commerce tax is comparable to an income tax on large businesses with annual gross revenue over $4 million. There are certain deductions taken into account to determine the tax.
The tax rate also varies depending on the type of business. If a return for this tax is required, businesses file it annually. (You do not have to file a Commerce Tax return if gross revenue is less than $4 million.)
Organizing or Incorporating a Business in Nevada
Another thing to note: a common misconception is that businesses created in Nevada automatically receive the Nevada tax treatment as Nevada LLCs or corporations. That’s not necessarily the case.
If the business has a presence and generates revenue in another state or has total out-of-state income, the other state will likely assess taxes on that income. Likewise, a Nevada company with employees in another state will be subject to that state’s employment taxes.
Moving a Business to Nevada
For some, Nevada may provide an attractive alternative for relocation. As with other decisions, limiting the analysis only to tax considerations may not best serve the business or its owner’s needs.
Factors such as the strength of the economy in both locations, logistics relating to the supply chain, business regulation, and other considerations should be weighed in addition to potential tax benefits.
If all those are attractive enough to consider relocating a business to Nevada, consulting a small business financial expert such as a Certified Public Accountant can help ease the tax side of a move.