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STARTING AND OPERATING A BUSINESS IN IDAHO Copyright © 2009, Michael D. Jenkins CHAPTER 18
CONTENTS OF THIS CHAPTER:
I. INTRODUCTION I. INTRODUCTION Idaho has a fairly typical tax and legal structure under which businesses must operate, but one that has proved to be a fertile environment for business growth, as evidenced by highly successful Idaho companies like Micron Technology and Albertson's. The state's hospitable business regulatory climate, very high literacy rate, low crime rate, and general prosperity (more millionaires per capita than any other state) make it a good place do start or relocate a business. Idaho has one of the lowest per capita tax burdens in the West, and is attractive state for employers, in that it has some of the lowest workers' compensation premium costs the nation and has enacted a right-to-work law. In addition, Idaho's 2008 unemployment tax rate of 1.0% for new employers was the lowest in the nation, although it has had to raise the rate somewhat, to 1.566%, in 2009, as a result of large increases in unemployment in the state in the last year. Due to its large hydroelectric generating capacity and proximity to large gas fields in the Western U.S. and Canada, it also has some of the lowest electricity and natural gas costs of any state. Idaho's cost of living index, at 94.7% of the national average, is the second-lowest of the eleven western states, second only to Utah. Like most states, Idaho imposes an income tax, a franchise tax on corporations, a sales and use tax, various excise taxes, with property taxes imposed at the local level. There is no state franchise tax on corporations, no tax on intangible property, and no tax on business inventories. The state has also adopted a limited liability company (LLC) law and a limited liability partnership (LLP) law, so that businesses operating in Idaho in LLC or LLP form may now obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. Until recently, the state's economy was very robust, in terms of the level of unemployment, which was well below the national averages, and other economic measures. For example, in February, 2008, the state's unemployment rate was only 3.9%, but by February, 2009 had risen to 6.8%, the highest in 21 years, although that unemployment rate was still significantly lower than the national rate of unemployment, which has risen to 8.1% for February, 2009. To view the latest federal Bureau of Labor Statistics unemployment rate data for Idaho or any other state, visit the BLS website. IMPORTANT NOTE: II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in Idaho can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level, rather than taxing the corporation itself as an entity. Idaho also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in Idaho can be established with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well and, beginning in 2006, all contractors must now register with the Idaho Bureau of Occupational Licenses. In addition, if your business makes retail sales that are subject to sales tax, you will have to register for and obtain a sales tax permit, as discussed in Section IV(d). You will also have to register an assumed or fictitious business name with the Idaho Secretary of State, if your business operates under such an assumed name, as discussed in Section IV(g). No separate tax form filing is required, generally, for a sole proprietorship, under the Idaho income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on the Idaho income tax and filing requirements for individuals. Doing business as a sole proprietor in Idaho is generally much simpler than operating as any other kind of business legal entity. As a sole proprietor, if you have no employees, you are not required to pay any unemployment taxes, withhold any federal or state income tax from wages, or obtain workers' compensation coverage for yourself. (c) Partnerships. Idaho's partnership laws allow the creation of either a general partnership, in which all partners are liable for the debts of the business, or a limited partnership, in which only the general partners are liable for debts, while the liability of limited partners is limited to the amount they have invested, as a rule. State law also allows for the creation of a limited liability partnership, in which no partner has personal liability (subject to certain exceptions). Partnerships, as entities, are not subject to state income tax in Idaho. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners). Partnerships are required to file an annual tax information return with the state. For details on Idaho partnership tax return filing requirements, see Section IV(c). In addition, partnerships, like other forms of business, will generally need to obtain local, and in some cases state, licenses, before beginning to do business in Idaho. See Section IV(b) for more on business licensing requirements. A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
Usually, general partnerships in Idaho can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses as well. General partnerships may, but are not required to, file a Statement of Partnership Authority ($100 fee) with the Idaho Secretary of State. This document serves as notice to the public that certain members of the partnership are authorized (or are not authorized) to enter in to specified types of transactions, such as real estate transactions, on behalf of the partnership. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under Idaho law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with the Idaho Secretary of State. There is a filing fee of $100 to file the certificate of limited partnership. A foreign limited partnership must also register and pay a $100 fee. For information on limited partnership filing requirements, see the contact information for the offices of the secretary of state, listed in Section VI(a). In addition, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which the limited partnership operates and, in some cases, state licenses as well. LIMITED LIABILITY PARTNERSHIPS Limited liability partnerships (LLP's) are a relatively new form of partnership permitted under the laws of Idaho. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and Idaho state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. Partners in a general partnership can obtain a significant degree of limited liability by simply registering the partnership with the state as an LLP. However, becoming an LLP will not affect the liability of a partner in a limited liability partnership for his or her own omissions, negligence, wrongful acts, misconduct or malpractice or that of any person under his or her direct supervision and control. To form an LLP in Idaho, you must register with and pay a filing fee of $100 to the Idaho Secretary of State. Foreign LLP's, those created under the laws of another state, must also register with the secretary of state and pay a fee of $100. Annual reports are required to be filed by the end of the anniversary month during which an LLP originally qualified or registered to do business in Idaho, under legislation enacted in 2005. There is no fee imposed in connection with filing such annual reports. For more information on LLP registration and reporting requirements, see the contact information for the offices of the secretary of state, listed in Section VI(a). In addition, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which the LLP operates and, in some cases, state licenses as well. Idaho enacted a new partnership law, repealing the previous Uniform Partnership Act, effective since January 1, 2001. Under the new act, an LLP is now able to file a single statement that will serve both as a statement of partnership authority and a statement of qualification as an LLP. Note that one potential drawback of LLP's, if you will do business in other states besides Idaho, is that some states, like California and New York, only recognize certain types of professional partnerships as LLP's. If yours is not a professional partnership, such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. (d) Corporations. To form a corporation in Idaho, you must file articles of incorporation with the Idaho Secretary of State and pay a fee of $100. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in Idaho, by filing an application for a certificate of authority and paying a filing fee of $100. For more information on filing articles of incorporation or applying for a certificate of authority to do business in Idaho, see the contact information for the offices of the secretary of state, listed in Section VI(a). In addition, once your corporation is formed, it will be required to file annual reports each year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter. No fee is charged for filing annual reports. In addition to paying federal income taxes on its income, a corporation that does business in Idaho must also file corporate income tax returns with the state. See Section IV(c) for a discussion of state corporate income tax rates and tax return filing requirements. There is no corporate franchise tax in Idaho. For tax forms and more information on corporate income taxes in Idaho, see the contact information for the offices of the Idaho State Tax Commission, listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. Idaho recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment of S corporations. (f) Limited Liability Companies. Idaho, like every other state, has now adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in Idaho may also choose to operate in the form of an LLC. In most states, LLC's are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes and, in most states, for state tax purposes. See Section IV(c) for a discussion of the income tax treatment of LLC's under Idaho tax laws. To form an LLC under the laws of Idaho, one or more persons, who need not be members of the LLC, must file articles of organization with the secretary of state, which must be accompanied by filing fees of $100. The law is silent as to whether an LLC may have only one member, or if it must have two or more members. However, the secretary of state's office has indicated that one-member LLC's are permitted in Idaho, now that the law provision that formerly required at least two members has been repealed. Foreign LLC's, those formed under the laws of another state, must obtain a certificate of authority to do business in Idaho, by filing an application for a certificate of authority with the secretary of state and paying a filing fee of $100. In addition to initial filing requirements, an LLC formed in Idaho or a foreign LLC must subsequently file annual reports each year. UPDATE NOTE: For more information on filing articles of organization for an LLC, see the contact information for the offices of the Idaho Secretary of State, listed in Section VI(a). (a) In General. When acquiring an existing business, there are a number of state legal and tax issues you or, preferably, your business attorney, should attend to before closing the purchase. These include matters such as doing a title search for any real property that is being acquired, checking for any recorded security interests on personal property items, and thoroughly researching county, state, and federal records for any judgment liens, tax liens, or other liens, before property is acquired. You will also benefit from consulting a tax advisor before the agreement of sale is negotiated, in order to seek a structuring of the agreement so that the purchase price is allocated among the assets in a way that favors you. You may be able to obtain considerable tax savings if the purchase price is allocated in a way that gives you the best possible tax results under federal and state income tax laws, and other state tax laws, such as sales/use tax or property tax laws. Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. Idaho is one of the states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in Idaho. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In Idaho, you should require that the seller obtain an unemployment tax release from the Employer Accounts Bureau of the Idaho Department of Labor. You should also request a tax releases from the Idaho State Tax Commission. Your request should identify the seller and either enclose a written authorization from the seller to release the tax information, or a signed copy of the purchase agreement. The Tax Commission will issue a tax clearance letter or summary of any taxes owed by the seller. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. To obtain the seller's favorable experience rating as a successor employer, you will need to apply on a timely basis to the Employer Accounts Bureau of the Idaho Department of Labor, requesting that you be treated as a successor employer. PLANNING POINT: EXAMPLE: IV. IDAHO TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
Idaho has most types of taxes imposed by other states, and its tax
rates are neither particularly high nor low, although the sales
tax, at 5%, with no local sales taxes except in a few resort towns,
is relatively low, compared to most other states. There is no
Idaho franchise tax, and no property tax is imposed on intangibles
or on business inventories. Idaho has one of the lowest overall
per capita tax burdens in the West.
Beginning with tax year that began in 2005, Idaho enacted
the Idaho Small Employer Incentive Act of 2005 and the Idaho
Corporate Headquarters Incentive Act of 2005, both of which
provided a number of state income tax credits and sales tax
rebates for qualifying business investments in the state that
met certain requirements, such as creating specified numbers
of high-paying jobs. However, in 2008, the legislature repealed
part of this tax reduction package, the Idaho Corporate
Headquarters Incentive Act of 2005.
For state tax forms and tax information, see the contact
information for the Idaho State Tax Commission in
Section VI(a).
(b) State and Local Licensing.
Nearly any business, operated anywhere in the United States,
will have to have at least one government license of some
kind. In most cases, this will be a local license, issued
by your city or county. Before you open your business,
contact your local city or county hall and find out if
your particular business needs one or more local licenses.
Most kinds of local business licenses are granted upon
payment of a fee, with no further requirements, except
possibly for annual or other periodic renewal fees.
However, if you are engaging in any kind of food business,
you will usually need to also obtain a health department
permit and show that you are in compliance with health
department food-handling requirements. In addition, be
sure to check with an attorney or local government zoning
or planning department officials to determine if your
business will be in compliance with all local zoning
and planning restrictions. If you own or rent any type
of facility, you will generally need fire department
permits, showing that you meet fire safety codes and any
construction or improvements to an existing structure
will usually require a building permit. If you intend
to simply operate your business from your home, you may
be in violation of local zoning requirements, but this
is less likely to be a concern if you don't have clients,
customers, suppliers, or employees coming to your house
on business, on a regular basis.
State governments have traditionally required special
licenses for many kinds of professionals, such as physicians,
dentists, lawyers, and accountants. To further protect
consumers, Idaho has expanded the list of occupations
that must be licensed by the state to include many other
occupations. Most state licenses not only require payment
of fees, but are only issued for a given profession or
occupation upon showing that you have completed certain
educational or experience requirements, or passed certain
tests, or some combination of the foregoing.
You can simultaneously register in Idaho with the Idaho
Department of Labor, State Tax Commission, and the Idaho
Industrial Commission, for unemployment tax, state income
tax withholding, and workers' compensation, on a single
registration form, Form IBR-1, Idaho Business
Registration Form. Registering for special taxes,
such as for amusement devices, cigarette and tobacco taxes,
fuel distributor taxes, and other taxes will require
registration on other forms, any of which can be downloaded
from the website of the State Tax Commission.
Since January 1, 2006, Idaho state law makes it
unlawful for a contractor to practice unless the
contractor holds a current contractor's registration
card or is otherwise exempt from registration. A
contractor is defined as anyone who does construction
(himself or through others) or a construction manager
who performs construction management services.
There is a $30 fee to register as a contractor.
However, THIS IS NOT A LICENSURE LAW. There are no
education, experience, or examination requirements
that must be met for registration as a contractor,
but applicants must submit specific information in
order to be registered with the Idaho Bureau of
Occupational Licenses.
For help with state licensing and business registration
requirements in Idaho, see the contact information for
the offices of the Idaho Department of Commerce, listed
in Section VI(a). Also contact
the Idaho Bureau of Occupational Licenses, also listed in
Section VI(a), to find out if your
particular kind of business requires a special state license,
or to register as a contractor.
(c) Income and Franchise Taxes.
Idaho has both an individual income tax and a corporate income
tax, but no longer has a franchise tax on corporations.
Idaho is one of only a few states that allows businesses
to claim the federally enacted 50% bonus (first-year)
depreciation and increased Section 179 expensing deduction
for the years 2008 and 2009.
Most other states have "de-coupled" from the federal tax law
in this respect, and disallow the 50% bonus depreciation and
increased Section 179 expensing deductions.
Nonresident partners, shareholders, officers, or
directors of business entities that operate in Idaho
may elect to have the entity withhold state income tax
on their behalf, if they have no other source of Idaho
taxable income, which will relieve them of the need to
file Idaho tax returns.
A partner in a partnership may elect to have the
partnership pay tax on his or her share of the Idaho-source
income of the partnership, at the corporation tax rate,
if the partner has no other Idaho-source income. Also,
S corporation shareholders may also elect to have the
corporation pay tax on behalf of them on their income
from the S corporation, and directors of a corporation
who receive directors' fees may also have the corporation
pay their Idaho tax on such compensation.
If any such nonresident person does not make the withholding
tax election and then fails to file an Idaho tax return and
pay the tax owed on such Idaho income, the partnership or
corporation becomes liable for the tax. The election is not
allowed in the case of a C corporation that earns less than
50% of its taxable income in Idaho.
TAXATION OF SOLE PROPRIETORS AND PARTNERSHIPS
The Idaho individual income tax is imposed graduated tax rates,
starting at 1.6%, and with a maximum tax rate of 7.8%, since 2001.
Income tax brackets are indexed annually for inflation.
Individual taxpayers generally pay state income tax on their
business earnings from a sole proprietorship, or on their share
of the earnings of a pass-through entity, such as a partnership,
S corporation or LLC. The Idaho personal income tax return is
Form 40, which must be filed with the Idaho
State Tax Commission each year on or before April 15th.
Partnerships, or entities taxable as partnerships, such
as LLC's, are not subject to state income taxation in Idaho,
but must file an information return with the Idaho State
Tax Commission each year, showing each partner's share of
taxable income, losses, and credits, on Form 65.
The partnership return is due at the same time as the federal
partnership return, on the 15th day of the fourth month after
the close of the taxable year (April 15th, generally, for
calendar year partnerships).
Individual taxpayers doing business as sole proprietors,
or who are partners in partnerships, or members of LLC's,
are not required to make advance payments of estimated Idaho
individual income taxes, but may do so voluntarily, on
Form 51. Idaho is the only state with a
general income tax, other than Utah, that does not require
prepayment of estimated income tax by individuals who are
subject to the state income tax.
A partner in a partnership may elect to have the partnership
pay Idaho tax on his or her share of the Idaho-source income of
the partnership, at the corporation tax rate, if the partner has
no other Idaho-source income.
The Idaho corporate income tax rate, on corporations
other than S corporations, is a flat rate of 7.6%, since
2001. There is a minimum tax of $20. The state corporation
income tax return is Form 41, which must
be filed with the State Tax Commission. If a multistate
corporation's only activity in Idaho consists of sales
(that do not exceed $100,000 a year), the corporation may
elect to pay tax at the rate of 1% of such gross sales.
A corporation is required to make estimated tax payments
of its state corporate income tax in advance, if it is required
to make federal estimated income tax payments and if its Idaho
tax liability for the year equals or exceeds $500. Estimated
tax payments are due in advance, in four equal installments,
on the 15th day of the 4th, 6th, 9th, and 12th months of
the taxable year, on Form 41ES. A corporation
is generally required to pay in at least 90% of its tax for
the year, or if less, an amount equal to 100% of its tax for
the prior year, as estimated tax payments, in order to avoid
incurring underpayment penalties.
Idaho recognizes a federal S corporation election and
treats S corporations as (generally) nontaxable pass-through
entities, as under the federal tax law. No separate state
S corporation tax election is required. However, an S
corporation must attach a copy of the federal S corporation
election Form 2553 to its first Idaho tax
return. While an S corporation is not taxable on its income,
it must pay an annual $20 minimum tax. The Idaho S corporation
tax return is Form 41S.
Corporation income tax returns, for both C corporations
and S corporations (except for farmers' cooperatives), are
due by the 15th day of the fourth month following the end
of the tax year, or April 15th, in the case of a calendar
year corporation.
Shareholders, officers, or directors, who have no
other Idaho-source income other than their income from a
corporation doing business in Idaho, may elect to have the
corporation pay the state income tax on their behalf, at
the corporate tax rate. This election is not allowed for
a C corporation, unless at least 50% of its taxable income
is taxable in Idaho.
TAXATION OF LIMITED LIABILITY COMPANIES
In Idaho, a limited liability company (LLC), if taxed
as a partnership for federal income tax purposes, will be
treated in the same manner for Idaho purposes, thus avoiding
the possible double taxation of income that can occur with
a corporation. Idaho has adopted the federal "check-the-box"
regulations, which treat a one-person LLC as the equivalent
of a sole proprietorship.
Note that it is not always entirely clear whether an LLC is a
"single-member LLC" or not, in a community property state like
Idaho, where the "single owner" is a married person and the LLC
is owned as community property. Fortunately, the federal Internal
Revenue Service (IRS) has taken a very lenient position in Rev.
Proc. 2002-69, stating that the IRS will accept whatever choice
the couple make, either to disregard the LLC as an entity (treating
it as a "single-member LLC") or to treat it as a partnership between
the husband and wife. Presumably, the couple's choice of federal
tax treatment will also apply for state tax purposes, since Idaho
follows the federal tax treatment of LLC's, generally.
However, where the LLC is owned by a husband and wife as joint
tenants, or tenants in common, or as tenants by the entirety, it
is unclear whether the IRS treatment would be as lenient as for
community property owners, since the IRS has not issued any
published rulings on whether an LLC can be a disregarded entity
if held in one of the various forms of tenancy by a married
couple, rather than being held as community property.
While an LLC taxable as a partnership generally is not
a taxable entity, a member of an LLC may elect to have
the LLC pay tax on his or her share of the Idaho-source
income of the LLC, at the corporation tax rate, if the
member has no other Idaho-source income.
(d) Sales and Use Tax.
Idaho imposes a general sales tax on retail sales of tangible
personal property and certain other sales, such as admissions,
at the statewide rate of 6%, since October 1, 2006. There are
generally no local sales taxes, except that certain resort
cities have limited authority to enact local sales taxes to
develop local tourism. General local sales taxes of 1% or
2% have been enacted in Ketchum, Lava Hot Springs, and Sun
Valley. Stanley has a 5% local tax on lodgings and liquor by
the drink. There is a statewide additional 2% sales tax for
hotels, motels, and campgrounds and a local auditorium tax
in Boise.
In August, 2006, Idaho enacted a new tax reform law,
reducing the statewide property tax by 3 mills, retroactive
to January 1, 2006, and increasing the sales and use tax
from 5% to 6%, effective as of October 1, 2006.
Sellers are required to obtain a seller's permit and to
collect and pay over the sales and use taxes to the Idaho
State Tax Commission. Any business that makes two or more
sales at retail in a twelve-month period is considered a
retailer and is required to register. You can register on
Form IBR-1, Idaho Business Registration, which
can also serve as your registration as an employer for state
income tax withholding. There is no fee for sales tax permits,
but you may be required to post a surety bond of up to $10,000,
but not more than 5 times the estimated monthly tax payment.
There are numerous exemptions from the sales tax, the most
important of which is the resale exemption. If you are a
wholesaler or retailer who purchases goods that you will
resell, your purchase of such goods may qualify as an exempt
sale for resale. Similarly, if you sell goods to wholesalers
or retailers for resale by them, your sale may also qualify
as an exempt sale for resale. In any such transaction, the
exemption is ordinarily available only if the purchaser gives
the seller a valid resale certificate, certifying that the
items are being purchased for resale, and not for use or
consumption by the buyer.
A shadow tax, the use tax, is also imposed at the same
rate as the sales tax. It is primarily intended to tax
property that is acquired from sources outside of the state,
in transactions not subject to sales tax, when such property
is used or consumed within Idaho. Use tax may also apply
to items purchased on an exempt basis, such as for resale,
if such items end up being used or consumed, instead of
being resold.
For more information on Idaho sales and use tax registration
and compliance, see contact information for the offices of the
Idaho State Tax Commission in Section VI(a).
(e) Real and Personal Property Taxes.
In Idaho, as in every other state, any business real estate you
own will be subject to real property taxes. In general, there
is little that you must do, unless you wish to challenge your
assessed valuation, since the assessor will bill you for each
year's property taxes as they come due.
Idaho also imposes personal property taxes on tangible
personal property. ("Personal property" is any kind of property
that is not real estate.) However, certain types of business
personal property, such as business inventories, are
exempt from personal property tax in Idaho.
You must file a personal property tax report with your
county assessor for business personal property each year,
for property owned on January 1, usually no later than
March 15th. For exceptions, contact your county assessor.
A law that would have allowed an exemption from personal
property tax of the first $100,000 in value of non-exempt
personal property in a county has been amended, and will
now only be into effect (if ever) in a year when the state's
receipts to its General Fund for the prior fiscal year grew
by more than 5% over the preceding fiscal year.
While Idaho generally taxes tangible personal property,
it does not impose a property tax on intangible personal
property, such as stocks, bonds, promissory notes, and
other such paper assets.
(f) Other Business Taxes.
Idaho imposes a number of excise and other taxes on
businesses, including:
(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. Idaho has enacted "The Assumed Business Names Act of 1997." Under this law, any individual or entity that proposes to do business in Idaho under an assumed name must, before beginning to transact business, file with the secretary of state a Certificate of Assumed Business Name in a form prescribed by the secretary of state, listing:
Once filed, a certificate of assumed business name continues in effect permanently, or until canceled. (Before 2003, an assumed business name registration had to be renewed every five years.) The filing must be amended if the owners of the business change. The filing fee for the original certificate is $25, with a $10 fee for amendments. Consequences of not filing a certificate of assumed business name include not being able to maintain a legal action in the state courts and liability for damages plus attorney fees to any person who suffers a loss because of another person's failure to file a certificate when required to do so. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. In addition, since Idaho imposes a state income tax on the income of individuals, you will need to also withhold Idaho income tax from the wages of your employees. Before you begin to pay wages, you must register as an employer with the Idaho State Tax Commission by filing Form IBR-1, Idaho Business Registration, which can also be used to register for a sales tax permit and for state unemployment tax purposes. You will be issued an employer I.D. number which you will use in filing withholding tax returns. The State Tax Commission has issued an updated version of its Guide to Idaho Income Tax Withholding, effective November, 2008. For more information on Idaho income tax withholding and registration requirements for employers, see the contact information for the offices of the State Tax Commission, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year, you, as an employer will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the Idaho unemployment tax must register with the Employer Accounts Bureau of the Idaho Department of Labor to obtain a registration number. New employers are required to pay tax at a standard rate of 1.566% in 2009 (up from 1.0% in 2008) on the first $33,200 of wages paid to each employee. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. All state unemployment taxes are imposed upon you as the employer, and, under Idaho law, cannot be charged to your employees or withheld from their wages. For more information on your Idaho unemployment tax obligations as an employer, see the contact information for the offices of the Employer Accounts Bureau of the Idaho Department of Labor, listed in Section VI(a). (c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In Idaho, virtually all businesses with one or more employees are required by law to have workers' compensation insurance, except those able to self-insure. Note, however, that a sole proprietor, a working partner in a partnership, or a working member of an LLC is generally not considered an employee. Corporate officers may also be exempted if they own at least 10% of the stock of the corporation and are directors (if the corporation has directors). Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. Thus, if you fail to obtain required workers' compensation insurance, and an employee is injured on the job, you will have opened yourself to unlimited liability and severe legal consequences, so it is very important to obtain workers' compensation insurance for your employees. Be aware that neither general liability nor health and accident insurance can properly substitute for workers' compensation insurance. As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage. For more detailed information regarding your obligations as an employer under the Idaho workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Idaho Industrial Commission and the Idaho State Insurance Fund, which are listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the Idaho wage-hour laws, which provide for a state minimum hourly wage that is the same as the federal minimum wage, $6.55 an hour, effective July 24, 2008, increasing to $7.25 on July 24, 2009. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees are exempted from the Idaho wage-hour rules. Besides the federal wage-hour posters that you must display in the workplace, you must also display a state wage-hour poster, which you can obtain from the Idaho Department of Labor. See the contact information for the Idaho Department of Labor in Section VI(a). In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in Idaho, which limit the hours children under 16 may work, and prohibit children under 16 from working during hours when public schools are in session unless they are able to demonstrate mastery of the English language and certain other basic subjects. Under Idaho's child labor laws, children under the age of 16 may not work more than 54 hours in a week, 9 hours in one day, or before 6 a.m. or after 9 p.m. on any day. Employment of children under the age of 14 is even more strictly regulated by the state. (e) State Occupational Safety and Health Laws. Approximately half of the states have their own OSHA-like agency, charged with administering the state's own occupational safety and health laws. The remaining states have no such enforcement agency, and thus rely instead on the federal Occupational Safety and Health Administration (OSHA) to administer the federal job safety rules within such states. Idaho is one of the states that does not have its own local equivalent of OSHA. Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case in states with their own OSHA programs, where, if you request a safety consultation from the state agency and they detect violations, they will not cite you if you promptly correct the unsafe conditions. For information on your job safety and health obligations as an employer, required posters, and possible on-site safety consultations, see the contact information for the Boise offices of the Idaho Department of Labor, the federal OSHA office in Boise, or the Idaho OSHA Consultation Program at Boise State University, all of which are listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other Idaho labor laws you need to be aware of, as an employer, include the following: (1) Wage payment laws. Idaho law requires you to pay an employee who quits or is terminated no later than the next regular payday or within 10 days, whichever is earlier. But if the employee requests earlier payment in writing, you must make payment within 48 hours of the request, not counting weekends and holidays. Employers are required to pay wages at least once a month. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. Idaho has a right-to-work law, which makes it illegal for an employer to make membership or non-membership in a labor union a condition of employment and also bans agency shop agreements between employers and unions. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in Idaho, and, optionally, should display a poster informing employees of their rights. You can obtain this poster and more information on Idaho anti-discrimination rules from the Boise office of the Idaho Human Rights Commission, at the address listed in Section VI(a). Idaho law, like federal civil rights laws, prohibits discrimination in employment practices based on race, color, religion, sex, age, or national origin. Discrimination against persons with disabilities is also prohibited, except where an employer cannot reasonably accommodate an individual's disability, or where such reasonable accommodation would not be sufficient to enable the disabled person to perform the work required in that job. (4) Reporting new hires. Under federal welfare reform laws, employers in every state are now required to to report newly-hired (or rehired) employees to a designated state agency (the Idaho Department of Labor for Idaho employers, New Hire Directory) within 20 days after the date of hire. See the mailing address and other contact information for the Idaho Department of Labor in Section VI(a). (5) Lie Detector Tests Prohibited. Idaho state law prohibits employers from requiring any employee or job applicant to submit to a polygraph test or any other type of "lie detector test" as a condition for obtaining employment or continuing in employment. Unlike the lie detector test prohibitions under federal law or under most other states' laws, the Idaho law makes no exceptions for any types of businesses. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. Unlike most other states, Idaho does not have a single agency to whom you can go to handle all your licensing and permitting requirements for your business under the laws of Idaho. Accordingly, you will need to contact the various Idaho government agencies that are mentioned in this book or listed below on an individual basis, to obtain needed forms, official posters, information and other assistance from each such agency. A list of addresses and other contact information for such key agencies is set forth below for your convenience. BUSINESS STARTUP INFORMATION. A key agency that can provide helpful information on getting your business up and running in Idaho is the state's Department of Commerce. Request their booklet, Starting a Business in Idaho. Idaho Department of Commerce SECRETARY OF STATE. Contact this office for information on:
Idaho Secretary of State TAXES. Obtain state income, sales and use tax, and other miscellaneous business tax forms, instructions and information from the following agency, which is the main tax collection agency in Idaho. Also register with this agency as an employer, for state income tax withholding purposes. Idaho State Tax Commission STATE LICENSES. Contact the agency listed below for information on state occupational licenses and whether your particular type of business requires such a license: Idaho Bureau of Occupational Licenses STATE LABOR LAWS. Contact the following agency about your obligations as an employer under various state labor laws, and request their booklet, the Guide to Idaho Labor Laws. This agency deals with the following matters:
Idaho Department of Labor STATE SALES TAX. Obtain your sales and use tax license or permit and information on the Idaho sales and use tax law, from the State Tax Commission, at the address listed above for that agency. EMPLOYER WITHHOLDING. Contact the Idaho State Tax Commission, at the address listed above, in order to register as an employer, for purposes of Idaho income tax withholding on employees' wages. STATE UNEMPLOYMENT TAX. Contact the following state agency to determine whether you are an employer subject to payment of state unemployment taxes, for registration as an employer, or about succeeding to a seller's unemployment experience rating. Employer Accounts Bureau WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must obtain workers' compensation coverage, contact the following agencies for further information: Idaho Industrial Commission and: Idaho State Insurance Fund STATE OSHA PROGRAM. There is no state OSHA program in Idaho. The federal government provides federal OSHA enforcement instead. For required posters and information on federal occupational safety and health laws that affect you as an employer in Idaho, contact: U.S. Department of Labor/OSHA -or, for OSHA consultation services, contact: Idaho OSHA Consultation Program STATE ANTI-DISCRIMINATION REQUIREMENTS. Contact the Idaho Human Rights Commission about your obligations as an employer under Idaho anti-discrimination statutes, or to obtain the (optional) Idaho anti-discrimination poster to display in the workplace: Idaho Human Rights Commission (b) Small Business Development Centers. A number of Idaho Small Business Development Centers (ISBDCs) are located throughout Idaho to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the office below for information, or for the location of other ISBDCs nearer to you. ISBDC: Boise State University (c) Internet Sites. For anyone with access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major Idaho state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in Idaho. Since new sites are appearing frequently, you might also want to search for other Idaho government Web sites by using one of the popular Internet search engines, such as Excite! or Yahoo. To start your Internet search for Idaho government information, you may want to begin with the following Internet sites: State of Idaho Home Page (Access Idaho): Idaho State Agencies Index (list of state government agencies): State Tax Commission (download Idaho tax forms): Idaho Department of Labor (wage-hour, unemployment tax, business startup information, new hire reporting): Idaho Industrial Commission (Workers' compensation): (d) Financing Sources. For information on financing your small business in Idaho, contact the Boise office of the U.S. Small Business Administration at: U.S. Small Business Administration Or, contact the Idaho Department of Commerce, at the address listed for that agency under the heading BUSINESS STARTUP INFORMATION in Section VI(a). |
Copyright © 2009 Michael D. Jenkins
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