How Does Temporarily Closing a Business Affect Taxes?

If you own a business, you know that any interruption of your operation affects your revenue. But how does temporarily closing a business affect taxes? A closure for a day or so, such as for a brief illness or power outage, might not have much of an impact. A longer closure, such as those many businesses experienced earlier in the COVID pandemic, would obviously have a much larger effect.

Businesses must deal with many types of tax obligations: income tax, payroll tax, and sales tax, just to name a few. The temporary closure of a business may affect all of these in different ways. If you are wondering, “Do I have to pay taxes for a closed business?” here’s what you need to know about your ongoing tax issues during a temporary shutdown.

Income Tax

An Ohio business that closes temporarily is still obligated to file both state and federal income tax returns reporting its income and expenses. If a temporary closure spans the end of one tax year and the beginning of the next, filings for both tax years will be affected.

While most businesses report for the entire tax year, in some cases, quarterly estimated payments are required. You should be prepared to timely pay any estimated tax and file returns. Requesting an extension of time to file a return is relatively straightforward, but there is no extension of time to pay.

Sales Tax

Ohio has a state sales and use tax rate of 5.75%, in addition to whatever local sales taxes (up to a maximum of 2.25%) may be levied. If you sell goods or services that are subject to sales tax, you may be required to file periodic sales tax returns, even if your business had no sales for the period in which it was closed. Most states require employers in this situation to make a “zero tax” filing.

Monthly sales tax filings in Ohio are due on the 23rd day of the month following the period in which they were applied. For instance, filing for September sales tax is due October 23.

Payroll Tax

Even during a temporary closure, Ohio businesses typically still have to meet certain payroll tax obligations. What you may need to do will depend on various factors, such as why you are temporarily closing the business, how many employees you have, and the nature of the business itself.

Typically, as an employer, you must continue to withhold state and federal income tax from your employee's wages, and remit those withholdings to the appropriate tax agency as scheduled. Similarly, you must continue to withhold FICA (Social Security and Medicare) taxes from employees’ wages, as well as contribute the employer's share of FICA taxes.

Unemployment Insurance Taxes

As an Ohio employer, you must pay taxes for state unemployment insurance. As a general rule, unemployment insurance tax is based on your company’s payroll. Even during a period of temporary shutdown, you may still be required to continue making tax payments.

Workers’ Compensation Premiums

Premiums paid by employers for workers’ compensation insurance are not technically a tax. However, Ohio employers are required to carry this coverage, and employers are 100% responsible for payment of the premiums. If you have employees and your business is closed temporarily, it is likely that you will need to continue making these payments during the closure.

Property Taxes

If you own the premises on which your business operates, you will continue to be responsible for property taxes regardless of whether your business is open or closed. In most cases, commercial tenants are not responsible for property taxes. However, your lease may contain a “pass-through” provision making you responsible for a portion of property taxes as an “operating expense.”

Temporarily closing a business can cause financial pain, especially if the closure is due to circumstances beyond your control, or for an uncertain duration. However, if you are forced to temporarily close your business for a public health emergency or other widespread event, help may be available. Contact federal, state, and local tax authorities as soon as possible to learn if any tax relief measures are available for your situation.

Also, remember that even if you have ongoing tax obligations during the temporary closure of a business, you may also continue to have various incentives and tax credits available to you. Consult an experienced tax professional to minimize your burden.

The Bottom Line

Hopefully, temporarily closing a business will be no more than a minor inconvenience to you and your employees. To learn more about whether you need to file taxes for a closed business, schedule an appointment today with the accounting and tax preparation professionals at Gudorf Tax Group.