When Does Your Business Have to Pay Franchise Tax in Florida?

Florida does not have a state income tax on individuals. So if your business is set up as a sole proprietorship, there is no state income tax on your business income in Florida. But according to the Florida Department of Revenue, if your business is set up as a corporation or other artificial entity, you are subject to the state corporate tax if you conduct business, earn or receive income in Florida. This includes corporations and entities outside the state.

Other artificial entities besides corporations that are subject to the Florida corporate tax include limited liability companies (LLCs) that are classified as corporations for federal and Florida tax purposes. LLCs that are classified as partnerships must file a partnership information tax return in Florida if one or more of the owners are a corporation. And corporations that are owners of an LLC that is classified as a partnership must file a Florida corporate tax return.

A single member LLC is disregarded for federal and Florida state tax purposes and does not have to file a Florida tax return. But if a corporation is the owner of a single member LLC, the corporation has to file a Florida corporate return reporting its own income and the income from the LLC.

An S corporation does not normally have to file a Florida corporate income tax return. But if the S corporation pays federal income tax on Form 1120-S, it must file a Florida corporate tax return.

The Florida corporate income tax is based on federal taxable income with certain modifications, including a $5,000 exemption. The corporate tax rate is 5.5% on Florida taxable income. Out-of-state corporations that are required to pay Florida corporate tax can allocate their income between Florida and other sources.

The Florida corporate income tax is filed on Form F-1120. If the corporation or other entity required to file a corporate return owes less than $2,500 in tax and meets other criteria, it can file Form F-1120A online. A partnership required to file a return must file Form F-1065.

If you have a business outside the state of Florida and your only business activity in Florida is to solicit orders, normally you would not have 'nexus' in the state and would not be subject to Florida corporate income tax. As explained by Annette Nellen en CPA2Biz, this is because of federal Public Law 86-272, passed in 1959. This law basically prohibits a state from imposing a net income tax if the only activities in the state are to solicit orders for tangible personal property that are sent outside the state for approval and are filled from outside the state.

But according to an article by Tricia Plank, CPA, and Sharon Bishop, CPA in the CPA Journal, the Florida Department of Revenue ruled that a company delivering products in Florida in its own trucks had established nexus in the state. The ruling was based on the fact that the company was performing activities other than soliciting orders, by making deliveries, and the company had property in Florida '" its trucks. So, according to the Florida Department of Revenue, this type of activity could expose an out-of-state company to corporate income tax in Florida, depending on the company's legal structure.

Sources:

Annette Nellen, CPA/Esq., The 50^th Anniversary of Public Law 86-272, CPA2Biz

Doing Business in Florida '" What Taxes are Required, Florida Department of Revenue

Florida's Corporate Income Tax, Florida Department of Revenue

Form F-1065, Florida Partnership Information Return, Florida Department of Revenue

Form F-1120, Florida Corporate Income/Franchise and Emergency Excise Tax Return, Florida Department of Revenue

Franchise Taxes on Business Income in Florida, Business Owner's Toolkit

Tricia Plank, CPA, and Sharon Bishop, CPA, Coopers & Lybrand L.L.P., Florida Looks at Delivery Under P.L. 86-272, The CPA Journal