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What is a Corporate Tax?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 25 September 2016
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Corporate taxes are any type of taxes that a corporation is obligated to pay to local, state, and federal tax agencies in exchange for the privilege of being allowed to conduct business within the applicable jurisdictions. In most cases, each jurisdiction provides a clear set of guidelines for calculating the amount of corporate tax owed for any given tax period. Corporations are expected to file documents along with submitting regular payments of taxes according to the regulations set in place by the tax agency.

The exact method for calculating a corporate tax will vary, as different jurisdictions may have different laws regarding the taxation of businesses and business earnings. In some cases, corporate tax is accessed on the amount of profit generated by the company; that is, taxes are not due on the actual collected revenue, but only on the portion that remains after the company has covered basic operational expenses. In other situations, the corporate tax is applied to the collected revenue during the period cited, although it is likely that a share of the taxes will be refunded when the annual corporate tax return is filed.

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It is not unusual for a corporation to calculate the amount of corporate tax owed to a given jurisdiction on a monthly basis, even when the filing requirements make it necessary for the taxes to be submitted on a quarterly basis. This approach allows a corporation to earmark some of the profits for paying taxes throughout the period, rather than attempting to come up with the full amount at one time. Smaller businesses in particular are likely to employ this method.

It is not unusual for a local jurisdiction that is attempted to attract new businesses into the area to offer a break on the corporate tax due. This is often in exchange for the opening of a facility in the area that will provide a substantial source of jobs and introduction of new revenue into the local economy. The temporary corporate tax break may be in effect for a period of years, with the provision that the corporation continues to operate the facility for at least the same number of years as the extended tax break.

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