Tax and License Requirements
The various local, state and federal governments require businesses operating within their jurisdiction to meet certain tax and license requirements. Contacting your local government to discuss these requirements is usually the best method to insure compliance.
We have summarized the most common requirements placed on small businesses and the phone numbers for the local government offices.
Partnership or Trade Name
Businesses using a trade name must register with the Clerk of the Court. A small fee is usually required.
Corporations
All corporations conducting business in Virginia must register with the State Corporation Commission. To register or to incorporate contact:
Certificate of Occupancy
Most businesses, including home occupations, must obtain a use permit, certificate of occupancy or home occupation permit. The local Zoning Administrator must verify that the proposed use is in compliance with all zoning ordinances and this may take from 7-14 days.
Business Licenses
All individuals, partnerships and corporations physically located in or doing business in the local cities, towns and counties are required to obtain a business privilege license. The fee for this license is based on type of business and the gross receipts of the business.
Many businesses, or the individuals in the business, are also required to have state and federal licenses.
Retail Sales Tax
Every retail dealer must register with the State and collect retail sales tax. Reports must be filed and the tax paid monthly or quarterly depending on the volume of business.
Consumer Use Tax
The Consumer Use Tax applies to all tangible personal property used or consumed within the state but was purchased outside the state, would have been subject to sales tax if it had been purchased within the state, and no state sales tax was paid. This tax also applies to any purchase within the state but on which the applicable sales tax was not paid. A report must be filed and the tax paid by the 20th day of the month following the month in which the liability occurred.
Business Tangible Personal Property
Businesses owning tangible personal property, furniture, fixtures, machinery, tools and vehicles are required to file a tax return itemizing the property, giving the date of acquisition and original purchase price. The due date of this return and payment of the tax varies with each jurisdiction.
Workers' Compensation Insurance
Any employer who has three or more regular employees is required to furnish workers' compensation insurance coverage at no cost to the employees. The insurance may be purchased through a private insurance company or the employer can apply to the Industrial Commission to be a self-insurer.
Federal Employer Identification Number
Every employer is required to have a federal employer identification number. To apply, use form SS-4, which can be obtained from any Internal Revenue Service office.
Employment Taxes and Income Tax Withholding
Employers are required to withhold Social Security (FICA) and income taxes from the wages of employees. The employer can be held liable for the taxes whether or not they were actually withheld. Internal Revenue Service requires a quarterly employment tax return to be filed and taxes paid at intervals determined by the amount of tax collected. (For additional information-see Payroll Tax Deposit Requirements). The states require a return and taxes paid on a monthly or quarterly basis, depending on the amount withheld.
Unemployment Taxes
Employers are required to pay an unemployment tax at both the state and federal levels. Internal Revenue Service requires quarterly deposits at authorized banks and an annual tax return. The states require a quarterly return with payment of tax. For most states, this tax is based on a percentage of each employee's first $7,000 or $8,000 earned in a calendar year.
Income Tax
Proprietorships, partnerships and corporations have an obligation to file and pay income taxes. However, the form of business determines who pays the tax and how it is reported.
Proprietorships include Schedule C and SE in the proprietor's individual income tax return and the proprietor is responsible for payment of income and self-employment taxes.
Partnerships and Sub-Chapter S Corporations have tax returns prepared at the partnership or Sub-S Corporation level. Partners and shareholders receive a Schedule K-1 from the business entity and then report their share of income and deductions on Schedule E in their personal tax returns. They are responsible for payment of income tax. Partners may also be responsible for self-employment taxes.
A Sub-chapter S corporation may be subject to a special tax on long-term capital gains and excess passive investment income.
Corporations have a corporate tax return which must be filed. Corporations are required to pay taxes at the corporate level. Shareholders are taxed on dividends distributed to them.