In the United States, corporations must pay corporate income tax on their annual earnings. While people commonly identify corporations with large companies, small businesses can also be corporations, thus resulting in the payment of corporate income taxes. Even when they are not corporations, small businesses do generate a high amount of tax revenue in the United States through other forms of taxation.
Small Business Defined
The U.S. Small Business Administration defines a small business by the amount of people it employs and by its total revenue. The specific limits for these measurements vary according to industry and business type. But the upper limit for annual revenue is $21.5 million, while the upper limit for employees is 1,500. However, the Internal Revenue Service draws a demarcation between small corporations and large corporations according to assets. As of 2009, the Service divides statistics between companies at the $250 million asset mark.
Corporate Income Tax
In calculating receipts from corporate income taxes, the IRS calculates that, as of 2009, corporations with $250 million or less in assets pay 75.4 percent of the total corporate tax revenue. With gross collections of approximately $225,482,000 from all corporations, that amounts to roughly $170,013,000 in corporate income tax revenue from smaller companies.
Personal Income Tax
The federal government levies income tax on individuals along with corporations. Small businesses that exist as sole proprietorships, partnerships, LLCs and S-corporations do not have to pay income tax on the company level. Instead, they pass their profits on to owners untaxed, and owners pay tax on whatever personal income they receive from the business. While the total amount of tax revenue that such small pass-through entities generate is difficult to determine, the SBA reports that the effective tax rate for such businesses tends to be between 13.3 and 26.9 percent of their taxable income in federal taxes.
In the United States, states can levy their own taxes on businesses. They do this through sales tax, additional corporate income tax and property tax. Even when small businesses are not corporations that pay a corporate income tax, they do generate tax revenue by creating commerce and engaging in consumption that results in such state taxes.
- David De Lossy/Photodisc/Getty Images