An Update on the State Tax Treatment of LLCs and LLPs

Tax Notes State

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In recent years, LLCs — and to a lesser extent, limited partnerships and LLPs — have become popular choices for structuring or restructuring multistate business entities. According to recent IRS statistics, more than two-thirds of all subchapter K entities are now domestic (U.S.) LLCs, surpassing all other entity types for 15 consecutive years.

The accompanying tables summarize the differences in the tax treatment of LLCs and LLPs across the 50 states and the District of Columbia. The tables discuss state tax considerations such as conformity with the federal income tax classification rules, entity-level taxes, and potential entity-level withholding or composite return requirements. We hope that the endnotes will be useful, especially those listing the states that exempt qualified investment partnerships or their nonresident partners from state income tax and nonresident partner withholding.

The original article, "An Update on the State Tax Treatment of LLCs and LLPs," was published in Tax Notes State on October 28, 2019.