Tax Analysts®Tax Analysts®

My Subscriptions:

Featured News

May 10, 2012
State Tax Treatment of LLCs and LLPs -- 2012 Update

Full Text Published by Tax Analysts®

by Bruce P. Ely, Christopher R. Grissom, and William T. Thistle II

Bruce P. Ely is a partner in the Birmingham, Ala., office of Bradley Arant Boult Cummings LLP and the long-time Alabama correspondent for this magazine. He can be reached via e-mail at bely@babc.com. Christopher R. Grissom is a partner and William T. Thistle II is an associate with the same law firm, also resident in Birmingham. Grissom may be reached via e-mail at cgrissom@babc.com and Thistle at wthistle@babc.com. © April 2012, Bruce P. Ely/Christopher R. Grissom/William T. Thistle II.


Table 1.
State Tax Treatment of Limited Liability Companies
and Limited Liability Partnerships
(as of April 1, 2012)
_____________________________________________________________________

Alabama

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays tax on nonresident partner's distributive share of Alabama income at the highest marginal tax rate applicable (effective January 1, 2009)

Entity-Level Tax on LLPs or LLCs?3

Annual $100 minimum and $15,000 maximum business privilege tax (electing family investment LLCs/LLPs subject to $500 annual cap; "financial institution groups" subject to Alabama deposits-based alternative tax capped at $3 million annually)

Citation to LLP/LLC Acts5

LLP: Ala. Code sections 10A-1-1.01 to 10A-1-9.32; and 10A-8-1.01 to 10A-8-11.04(2)

LLC: Ala. Code sections 10A-1-1.01 to 10A-1-9.32 and 10A-5-1.01 to 10A-5-9.06


Alaska

State Income Tax Classification of LLCs Follows Federal?4

Yes

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Alaska Stat. sections 32.06.911 to 32.06.925(2)

LLC: Alaska Stat. sections 10.50.010 to 10.50.995


Arizona

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Ariz. Rev. Stat. Ann. sections 29-1026, 29-1101 to 29-1109(2)

LLC: Ariz. Rev. Stat. Ann. sections 29-601 to 29-857


Arkansas

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLP/LLC withholds 7 percent of distributions of Arizona-source income to nonresident partners unless consents or composite return filed

Entity-Level Tax on LLPs or LLCs?3

Every LLC formed under the Small Business Entity Tax Pass Through Act (Ark. Code Ann. section 4-32-101 et seq.) must pay the minimum franchise tax (currently $150)

Citation to LLP/LLC Acts5

LLP: Ark. Code Ann. section 4-42-703; sections 4-46-1001 to 4-46-10032

LLC: Ark. Code Ann. sections 4-32-101 to 4-32-1401


California

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays tax on nonresident partner's distributive share of California income at 7 percent (for U.S. partners) unless nonresident consents filed; if consents filed, still must withhold (but may request waiver from state)

Entity-Level Tax on LLPs or LLCs?3

Annual $800 minimum franchise tax on all LLCs/LLPs; and gross receipts tax ranging from $900 to $11,790 on LLCs (unapportioned prior to January 1, 2007; unapportioned fee declared unconstitutional in Northwest Energetic Services, LLC v. Franch. Tax Bd., 159 Cal. App. 4th 841, 71 Cal. Rptr. 3d 642 (1st Dist., 2008) and Ventas Finance I, LLC v. Franch. Tax Bd., 81 Cal Rptr 3d 823 (1st Dist., 2008), rev. denied Cal. S. Ct., No. S166870 (Cal. 2008), cert. denied, U.S. S. Ct. Dkt. No. 08-1022 (Apr. 6, 2009)).

Citation to LLP/LLC Acts5

LLP: Calif. Corp. Code sections 16951 to 169612 (listed "professionals" only)

LLC: Calif. Corp. Code sections 17000 to 17655 (not available to listed "professionals")4


Colorado

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP withholds at 4.63 percent or pays tax at 4.63 percent in composite return on nonresident partner's distributive share of Colorado-source income unless nonresident consents filed

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Colo. Rev. Stat. Ann. section 7-60-144; sections 7-64-1001 to 7-64-1010(2)

LLC: Colo. Rev. Stat. Ann. sections 7-80-101 to 7-80-1101


Connecticut

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays tax on nonresident noncorporate partner's distributive share of Connecticut-source income at highest marginal rate

Entity-Level Tax on LLPs or LLCs?3

LLCs, LLPs subject to annual "business entity tax" of $250

Citation to LLP/LLC Acts5

LLP: Conn. Gen. Stat. Ann. sections 34-406 to 34-4342

LLC: Conn. Gen. Stat. Ann. sections 34-100 to 34-242


Delaware

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

LLCs/LLPs subject to $250 tax per year; LLPs subject to $200/partner/year fee with $120,000 cap

Citation to LLP/LLC Acts5

LLP: Del. Code Ann. tit. 6, sections 15-1001 to 15-11052

LLC: Del. Code Ann. tit. 6, sections 18-101 to 18-11094,8


District of Columbia

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

9.975 percent tax on district source income earned by unincorporated business but no tax on SMLLC owned by another entity subject to tax in the district ($250 minimum) or on professional firms where 80 percent of income derived from personal services and capital not material income-producing factor "ballpark fee" based on district gross receipts from previous year in excess of $5 million, ranges from $5,500 to $16,500

Citation to LLP/LLC Acts5

LLP: D.C. Code Ann. sections 29-701.01 to 29-711.012

LLC: D.C. Code Ann. sections 29-801.01 to 29-810.01


Florida

State Income Tax Classification of LLCs Follows Federal?4

Yes1 (no state personal income tax)

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Fla. Stat. Ann sections 620.9001 to 620.91052

LLC: Fla. Stat. Ann. sections 608.401 to 608.705; sections 621.01 to 621.14 (professionals)


Georgia

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP withholds 4 percent tax on nonresident partner's distributive share of Georgia income, with exemptions, unless composite return filed (entity and partners are jointly and severally liable)

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Ga. Code Ann. sections 14-8-44 to 14-8-642

LLC: Ga. Code Ann. sections 14-11-100 to 14-11-1109


Hawaii

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Hawaii Rev. Stat. sections 425-151 to 425-1732

LLC: Hawaii Rev. Stat. sections 428-101 to 428-1302


Idaho

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

Composite returns permitted for nonresident partner individuals; if nonresident fails to pay the tax, LLC/LLP is contingently liable. Effective January 1, 2011, LLC/LLP no longer contingently liable for taxes of nonresident partners, but must withhold at the highest applicable marginal rate unless composite return filed

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Idaho Code sections 53-3-101 to 53-3-12052

LLC: Idaho Code sections 53-601 to 53-672, repealed effective July 1, 2010; for LLCs formed after July 1, 2008, see Idaho Code sections 30-6-101 to 30-6-1104


Illinois

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP must withhold from each nonresident partner an amount equal to the partner's distributable share of the Illinois business income of the partnership, multiplied by the applicable tax rates for that partner, unless a composite return is filed

Entity-Level Tax on LLPs or LLCs?3

1.5 percent "replacement" income tax on partnerships and LLCs; partners liable if LLC/LLP fails to pay; "investment partnerships" exempt domestic LLPs subject to $100/partner/year fee with a $200 minimum and $5,000 cap

Citation to LLP/LLC Acts5

LLP: 805 Ill. Comp. Stat. 215/0.01 to 215/1402, 206/100 to 206/12992

LLC: 805 Ill. Comp. Stat. 180/1-1 to 180/60-18 (attorneys may use LLPs or LLCs but remain jointly and severally liable for malpractice of other owners/employees unless adequate insurance carried)4


Indiana

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays withholding tax on nonresident partner's distributive share of Indiana source income at applicable state rate; composite return also required

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Ind. Code Ann. sections 23-4-1-44 to 23-4-1-532

LLC: Ind. Code Ann. sections 23-18-1-1 to 23-18-13-1


Iowa

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays 5 percent withholding tax on nonresident partner's distributive share of Iowa income unless certificate of release obtained from the Iowa DOR and estimated tax paid by nonresident partner

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Iowa Code sections 486A.101 to 486A.13022

LLC: Iowa Code sections 490A.100 to 490A.16018


Kansas

State Income Tax Classification of LLCs Follows Federal?4

Yes

Nonresident Partner Withholding?6,7

LLC/LLP pays withholding tax on nonresident partner's distributive share of Kansas income at highest state rate, currently 6.45 percent, unless nonresident consents filed

Entity-Level Tax on LLPs or LLCs?3

For tax years after Dec. 3, 2010, the franchise tax is repealed. For prior tax years, LLCs/LLPs were subject to franchise tax on net capital accounts with a $20,000 cap, but only if net capital accounts located or used in Kansas are $1,000,000 or more. There is an annual report fee of $40

Citation to LLP/LLC Acts5

LLP: Kan. Stat. Ann. sections 56a-1001 to 56a-12072

LLC: Kan. Stat. Ann. sections 17-7601 to 17-76,142


Kentucky

State Income Tax Classification of LLCs Follows Federal?4

Yes

Nonresident Partner Withholding?6,7

LLCs/LLPs must withhold at 6 percent unless nonresident partner filed return and timely paid Kentucky income tax in immediately prior year (but if partner does not pay tax in current year, LLC/LLP still liable). Withholding required for corporate partner that is only doing business in Kentucky through its ownership interest in a passthrough entity

Entity-Level Tax on LLPs or LLCs?3

LLCs/LLPs subject to limited liability entity tax equal to lesser of $0.095 per $100 of Kentucky gross receipts or $0.75 per $100 of Kentucky gross profits, with exceptions. Must pay minimum tax of $175. Partners generally allowed credit against Kentucky personal income tax for proportionate share of LLE tax

Citation to LLP/LLC Acts5

LLP: Ky. Rev. Stat. sections 362.220, 362.555 to 362.605; sections 362.1-1001 et seq.2

LLC: Ky. Rev. Stat. sections 275.001 to 275.540 (Ky. S. Ct. rules amended to allow attorneys to use LLCs and LLPs, but must maintain minimum insurance levels)


Louisiana

State Income Tax Classification of LLCs Follows Federal?4

State classification follows federal classification of LLC but only with respect to corporate income tax, not franchise tax1

Nonresident Partner Withholding?6,7

LLC/LLP required to make composite tax payments on nonresident partner's distributive share of Louisana income at highest individual state rate unless nonresident consents filed. Partners that are partnerships themselves generally cannot be included on composite return (La. Admin. Code section 61.I.1401(B)(1))

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: La. Rev. Stat. Ann. sections 9:3431 to 9:3435

LLC: La. Rev. Stat. Ann. sections 12:1301 to 12:1369


Maine

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays quarterly withholding tax on nonresident partner's proportionate share of Maine income at highest applicable state rate unless composite return filed or certain exemptions apply

Entity-Level Tax on LLPs or LLCs?3

LLC "financial institutions" are taxed at the entity level at a rate of 1 percent of Maine net income and $0.08 per $1,000 of Maine assets or $0.39 per $1,000 of Maine assets

Citation to LLP/LLC Acts5

LLP: Maine Rev. Stat. Ann. tit. 31, sections 801 to 8762 (effective 7/1/07, P. L. 2005, c. 543)

LLC: Maine Rev. Stat. Ann. tit. 31, sections 601 to 762


Maryland

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays tax on nonresident partner's distributive share of Maryland income at rate of 7.5 percent for individuals, 8.25 percent for entities, limited to amount of nonresidents' distributive share of income, not to exceed the sum of all nonresidents' shares of distributable cash flow

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Md. Code Ann., Corps. and Ass'ns sections 9A-1001 to 9A-12052

LLC: Md. Code Ann., Corps. and Ass'ns sections 4A-101 to 4A-1103


Massachusetts

State Income Tax Classification of LLCs Follows Federal?4

Yes1 (except single-member LLCs (SMLLCs) owned by S corps) (until 2009, check-the-box regs followed only for LLCs; LP and LLP classifications determined by common law, Kintner regs) Effective January 1, 2009, will follow check-the-box regs

Nonresident Partner Withholding?6,7

Effective January 1, 2009, LLC/LLP pays quarterly withholding tax on nonresident partner's distributive share of Massachusetts income unless composite return or nonresident consents filed or certain exemptions apply

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Mass. Gen. L. ch. 108A, sections 45 to 492

LLC: Mass. Gen. L. ch. 156C, sections 1 to 69


Michigan

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays withholding tax at a rate of 4.35 percent (4.25 percent effective January 1, 2013) on nonresident partner's distributive share of Michigan taxable income, unless certain exemptions apply; effective January 1, 2012, withholding may apply to certain corporate nonresident partners

Entity-Level Tax on LLPs or LLCs?3

Effective January 1, 2008, through December 31, 2011, Michigan business tax (MBT) applies to LLCs and LLPs; tax is 4.95 percent of business income; 0.80 percent of modified gross receipts tax base; and a 21.99 percent surcharge on allocated and apportioned income before credits with $6 million cap.

Effective January 1, 2012, Michigan imposes a corporate income tax on C corporations, replacing the MBT

Citation to LLP/LLC Acts5

LLP: Mich. Comp. Laws Ann. sections 449.44 to 449.48

LLC: Mich. Comp. Laws Ann. sections 450.4101 to 450.5200


Minnesota

State Income Tax Classification of LLCs Follows Federal?4

Yes1 (except foreign single-member LLCs (SMLLCs) with C corp. member cannot be disregarded)

Nonresident Partner Withholding?6,7

LLC/LLP pays withholding tax on nonresident partner's distributive share of Minnesota income at highest individual rate (7.85 percent) unless composite return filed

Entity-Level Tax on LLPs or LLCs?3

$0 to $5,000 fee based on sum of entity's Minnesota property, payroll, and sales

Citation to LLP/LLC Acts5

LLP: Minn. Stat. sections 323A.1001 to 323A.11052

LLC: Minn. Stat. sections 322B.01 to 322B.975


Mississippi

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

Generally no, but LLC/LLP and general partners are jointly and severally liable for any unpaid tax unless LLC/LLP withholds and remits 5 percent of the LLC's/LLP's net profit or gain for the year

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Miss. Code Ann. sections 79-13-101 to 79-13-12062

LLC: Miss. Code Ann. sections 79-29-101 to 79-29-1204


Missouri

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays withholding tax on nonresident individual partner's distributive share of Missouri income at highest state rate (currently 6 percent) unless either nonresident consents or composite return filed

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Mo. Rev. Stat. sections 358.440 to 358.510; 358.150.22

LLC: Mo. Rev. Stat. sections 347.010 to 347.189


Montana

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP liable for income tax at applicable state rate for individual nonresident partner's distributive share of Montana income unless either composite return or nonresident consents filed

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Mont. Code Ann. sections 35-10-701 to 35-10-7102

LLC: Mont. Code Ann. sections 35-8-101 to 35-8-1307


Nebraska

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP liable for income tax at highest state rate on nonresident individual partner's distributive share of Nebraska income unless nonresident consents filed

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Neb. Rev. Stat. sections 67-344 to 67-346; sections 67-454 to 67-4652

LLC: Neb. Rev. Stat. sections 21-2601 to 21-2653


Nevada

State Income Tax Classification of LLCs Follows Federal?4

No state income tax

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Nev. Rev. Stat. sections 87.440 to 87.5602 ("professionals" only if domestic RLLP)

LLC: Nev. Rev. Stat. sections 86.011 to 86.590(8)


New Hampshire

State Income Tax Classification of LLCs Follows Federal?4

Yes1 (conforms to check-the-box regs but only with respect to multi-member LLCs)

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

5 percent on dividends and interest exceeding $2,400 if LLC/LLP is without transferable shares (repealed for tax years ending on or after December 31, 2010); 8.5 percent on business profits (only for LLCs/LLPs with more than $50,000 in gross business income); and 0.75 percent on the "business enterprise value tax base" of the LLC/LLP. Note: a dollar for dollar credit is allowed against the business profits tax for the amount of business enterprise tax owed

Citation to LLP/LLC Acts5

LLP: N.H. Rev. Stat. Ann. sections 304A:44 to 304A:55

LLC: N.H. Rev. Stat. Ann. sections 304C:1 304C:85; sections 304D:1 to 304D:20 (professional LLCs)


New Jersey

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

None, but entity level tax on nonresident partners' distributive shares of New Jersey net income

Entity-Level Tax on LLPs or LLCs?3

$150/partner annual fee with $250,000 cap for partnerships with more than two partners; no annual fee for LLCs/LLPs with less than three partners; and LLCs/LLPs must make quarterly payments of 6.37 percent of New Jersey net income allocated to all nonresident noncorporate partners and 9 percent for all nonresident corporate partners

Citation to LLP/LLC Acts5

LLP: N.J. Stat. Ann. sections 42:1A-47 to 42:1A-542

LLC: N.J. Stat. Ann. sections 42:2B-1 to 42:2B-70


New Mexico

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP required to withhold tax on nonresident partner's distributive share of New Mexico income at highest individual rate unless nonresident consents filed

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: N.M. Stat. Ann. sections 54-1A-1001 to 54-1A-11052

LLC: N.M. Stat. Ann. sections 53-19-1 to 53-19-74


New York

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLCs/LLPs make quarterly estimated tax payments on behalf of C corp./nonresident individual owners that owe more than $300 in tax, unless commissioner authorizes "group returns" No estimated tax payments required on behalf of C corp./ nonresident individual owners that file an exemption certificate with the LLC/LLP certifying their compliance with all New York income tax, estimated tax, and income tax return filing requirements

Entity-Level Tax on LLPs or LLCs?3

LLCs/LLPs subject to annual filing fee based on New York-source gross receipts, min. $25, max. $4,500 SMLLCs that are treated as disregarded entities for federal income tax purposes are subject to a $25 annual filing fee. Before 2008,

LLCs/LLPs subject to annual fee based on number of partners

Citation to LLP/LLC Acts5

LLP: N.Y. Partnership Law sections 121-1500 to121-15062 ("professionals" only)

LLC: N.Y. L.L.C. Law sections 101 to 1403


North Carolina

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays withholding tax on individual nonresident partner's distributive share of N.C. income at the applicable individual income tax rate LLC/LLP pays withholding tax on non-individual nonresident partner's distributive share of N.C. income at the applicable income tax rate unless nonresident consent filed

Entity-Level Tax on LLPs or LLCs?3

If book value of LLC assets exceeds $150,000, corp. member required to include LLC's assets, directly or indirectly owned, in its franchise tax base if collective ownership by corp. and its affiliates of capital interests of the LLC is more than 50 percent. LLC electing to be taxed as a C corporation subject to franchise tax Effective January 1, 2009, LLC electing to be taxed as S corporation also subject to franchise tax

Citation to LLP/LLC Acts5

LLP: N.C. Gen. Stat section 59-84.2 to 59-84.4; sections 59-90 to 59-94

LLC: N.C. Gen. Stat. sections 57C-1-01 to 57C-10-07


North Dakota

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays 3.99 percent withholding tax on distributions to nonresident partners unless composite return filed

Entity-Level Tax on LLPs or LLCs?3

No (nominal annual filing fee based on number of LLP managing partners)

Citation to LLP/LLC Acts5

LLP: N.D. Cent. Code sections 45-22-01 to 45-22-272

LLC: N.D. Cent. Code sections 10-32-01 to 10-32-156


Ohio

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays 5 percent withholding tax on distributions to nonresident individual partners and a 8.5 percent withholding tax on distributions to certain non-individual partners after certain adjustments unless composite return or consents to jurisdiction filed

Entity-Level Tax on LLPs or LLCs?3

Franchise tax credit calculations include corporation's proportionate share amounts from any passthrough entity. Unless gross receipts less than $150,000, LLCs/LLPs subject to commercial activity tax of $150 plus 0.26 percent of Ohio gross receipts in excess of $1 million

Citation to LLP/LLC Acts5

LLP: Ohio Rev. Code Ann. sections 1775.61 to 1775.652

LLC: Ohio Rev. Code Ann. sections 1705.01 to 1705.61


Oklahoma

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays 5 percent withholding tax on distributions to nonresident partner of Oklahoma income unless nonresident consents filed

Entity-Level Tax on LLPs or LLCs?3

LLCs/LLPs are subject to business activity tax (BAT) of $25 plus 1 percent of "net revenue," but, for tax years 2010, 2011, and 2012, the BAT liability is tied to the amount of the taxpayer's 2009 franchise tax liability

Citation to LLP/LLC Acts5

LLP: Okla. Stat. tit. 54, sections 1-1001 to 1-11052

LLC: Okla. Stat. tit. 18, sections 2000 to 20608


Oregon

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP withholds tax on nonresident partners distributive share of Oregon income computed at the highest applicable rate, unless composite return filed or other exceptions apply

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Or. Rev. Stat. sections 67.500, 67.7702 ("professionals" only)

LLC: Or. Rev. Stat. sections 63.001 to 63.990


Pennsylvania

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays withholding tax on nonresident individual and "nonfiling corporate" partners' distributive share of Pennsylvania income at the applicable income tax rate

Entity-Level Tax on LLPs or LLCs?3

LLCs, except for "restricted professional companies," subject to capital stock tax on taxable capital stock value (to be phased out by 2014).

Professional LLCs subject to $300/Penn. member/year fee; LLPs subject to $240/Penn. partner/year fee

Citation to LLP/LLC Acts5

LLP: 15 Pa. Cons. Stat. sections 8201 to 8221

LLC: 15 Pa. Cons. Stat. sections 8901 to 89984


Rhode Island

State Income Tax Classification of LLCs Follows Federal?4

Yes1 (for withholding purposes, corporate-owned SMLLC treated as C corporation)

Nonresident Partner Withholding?6,7

LLP/LLC pays withholding tax at highest marginal rate for individuals and 9 percent for corporations, unless composite return filed

Entity-Level Tax on LLPs or LLCs?3

$500 tax on LLCs taxed as partnerships

Citation to LLP/LLC Acts5

LLP: Codified at various sections beginning with R.I. Gen. Laws section 7-12-13 (available to listed "professionals")

LLC: R.I. Gen. Laws sections 7-16-1 to 7-16-75 (available to listed "professionals")


South Carolina

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays 5 percent withholding tax on nonresident partner's distributive share of South Carolina income unless nonresident consents or composite return filed

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: S.C. Code Ann. section 33-41-370; sections 33-41-1110 to 33-41-1220

LLC: S.C. Code Ann. sections 33-44-101 to 33-44-1208


South Dakota

State Income Tax Classification of LLCs Follows Federal?4

No state income tax

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

Domestic LLCs subject to $150 initial report fee; foreign LLCs subject to $750 initial report fee; all LLCs subject to $50 annual report fees thereafter

Citation to LLP/LLC Acts5

LLP: S.D. Codified Laws Ann. sections 48-7A-1001 to 48-7A-11052

LLC: S.D. Codified Laws Ann. sections 47-34A-101 to 47-34A-1207


Tennessee

State Income Tax Classification of LLCs Follows Federal?4

Yes1 (but LLCs subject to franchise/excise tax anyway and SMLLCs only disregarded if member is a corporation)

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

LLC/LLP subject to franchise/excise tax of (1) $0.25 per $100 of net worth and (2) 6.5 percent of net earnings; corporate member of disregarded SMLLC subject to Tennessee franchise/excise tax; all entities classified as partnerships are also subject to 6 percent dividends and interest income tax; LLC/LLPs subject to $50/partner annual fee, min. $300, max. $3,000 for LLCs; $250/$2,500 for LLPs

Citation to LLP/LLC Acts5

LLP: Tenn. Code Ann. sections 61-1-1001 to 61-1-10052

LLC: Tenn. Code Ann. sections 48-201-101 to 48-249-11338


Texas

State Income Tax Classification of LLCs Follows Federal?4

State taxes LLCs as corporations (no state personal income tax)

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

LLPs subject to $200/partner/year fee LLCs and LLPs subject to Texas franchise "margin" tax at 0.5 percent (retailers and wholesalers) or 1 percent (all other businesses) of lowest of: (1) 70 percent of total revenue; (2) total revenue minus cost of goods sold; or (3) total revenue minus total compensation

Citation to LLP/LLC Acts5

LLP: Texas Bus. Org. Code sections 152.801 to 152.8052

LLC: Texas Bus. Org. Code sections 101.001 to 101.621


Utah

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

Unless a waiver is obtained, LLC/LLP must pay or withhold tax on the business and nonbusiness income of the passthrough entity derived from or connected with Utah sources on behalf of a nonresident passthrough entity taxpayer

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Utah Code Ann. sections 48-1-1 to 48-1-48 (effective July 1, 2012, replaced by Utah Code Ann. sections 48-1b-101 to 48-1b-12052)

LLC: Utah Code Ann. sections 48-2c-101 to 48-2c-19028 (effective July 1, 2012, replaced by Utah Code Ann. sections 48-3-101 to 48-3-1405)


Vermont

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP must make quarterly estimated tax payments at second lowest marginal rate on nonresident partner's distributive share of Vermont income

Entity-Level Tax on LLPs or LLCs?3

LLC/LLP must pay annual tax of $250

Citation to LLP/LLC Acts5

LLP: Vt. Stat. Ann. tit. 11, sections 3291 to 33052

LLC: Vt. Stat. Ann. tit. 11, sections 3001 to 3184


Virginia

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP must pay withholding tax of 5 percent of nonresident partner's allocable share of Virginia income

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Va. Code Ann. sections 50-73.132 to 50-73.1432

LLC: Va. Code Ann. sections 13.1-1000 to 13.1-1080; sections 13.1-1100 to 13.1-1123 (professionals)


Washington

State Income Tax Classification of LLCs Follows Federal?4

State taxes LLCs as partnerships (no state personal income tax)

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

Business and occupation tax of 0.138 percent to 3.3 percent of gross receipts

Citation to LLP/LLC Acts5

LLP: Wash. Rev. Code sections 25.05.500 to 25.05.5892

LLC: Wash. Rev. Code sections 25.15.005 to 25.15.902


West Virginia

State Income Tax Classification of LLCs Follows Federal?4

Yes1

Nonresident Partner Withholding?6,7

LLC/LLP pays 6.5 percent withholding tax on nonresident partner's distributive share of West Virginia income unless nonresident consents filed

Entity-Level Tax on LLPs or LLCs?3

Greater of $50 or 0.34 percent (0.27 percent, effective January 1, 2012) of "capital" (generally, average balance of partners' capital accounts per Form 1065), but is scheduled to phaseout in 2015

Citation to LLP/LLC Acts5

LLP: W.Va. Code sections 47B-10-1 to 47B-10-5

LLC: W.Va. Code sections 31B-1-101 to 31B-13-1205; sections 31B-13-1301 to 31B-13-1306 (professionals)


Wisconsin

State Income Tax Classification of LLCs Follows Federal?4

Yes

Nonresident Partner Withholding?6,7

LLC/LLP pays quarterly withholding tax on nonresident shares of Wisconsin income at highest individual/corporate rate, with exemptions

Entity-Level Tax on LLPs or LLCs?3

LLCs/LLPs with more than $4 million in gross receipts are subject to economic development surcharge tax of $25 to $9,800

Citation to LLP/LLC Acts5

LLP: Wis. Stat. sections 178.40 to 178.532

LLC: Wis. Stat. sections 183.0102 to 183.1305


Wyoming

State Income Tax Classification of LLCs Follows Federal?4

No state income tax

Nonresident Partner Withholding?6,7

No

Entity-Level Tax on LLPs or LLCs?3

No

Citation to LLP/LLC Acts5

LLP: Wyo. Stat. sections 17-21-1101 to 17-21-1107

LLC: Wyo. Stat. sections 17-15-101 to 17-15-147; sections 17-25-101 to 17-25-109 (close LLCs) (domestic LLCs having one or more members may elect to be either a "flexible LLC" or a "close LLC")


FOOTNOTES

1 Indicates that the state taxing authority has publicly announced that it will follow the IRS check-the-box regulations for state income tax purposes, the state LLC act adopts the regulations either explicitly or implicitly, or the state adopts them by separate statute. Note that many states, such as Florida, Georgia, Michigan, and the District of Columbia, do not conform to the check-the-box regulations for sales, use, and other related taxes.

2 Indicates that the state has adopted the Revised Uniform Partnership Act, known as RUPA, or another "bulletproof" (broad form liability shield) LLP statute.

3 Assumes entity is classified as a partnership for federal income tax purposes. See supplemental chart regarding net-worth or debt-based corporate franchise taxes.

4 States such as California, Delaware, Illinois, and Pennsylvania restrict the use of LLCs by banks and/or insurance companies.

5 Currently, the following states authorize the formation of limited liability limited partnerships (LLLPs): Alabama, Arkansas, Colorado, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Minnesota, Missouri, Nevada, New Mexico (effective January 1, 2009), North Carolina, North Dakota, Ohio (effective January 1, 2009), Oklahoma, Pennsylvania, South Dakota, Utah (effective July 1, 2012), Virginia, and Wyoming. Arizona and Texas do not authorize formation of an entity called a "limited liability limited partnership," but they allow an LP to be treated also as an LLP and require such entities treated as both an LP and an LLP to include "LLLP" in their name. Other states, including New Hampshire, Ohio, Rhode Island, and Tennessee, permit functional equivalents of LLLPs.

6 "Partner" in this column and throughout the chart means both partners of LLPs and members of LLCs unless otherwise clear from the context. This column does not list those states which permit, but do not require, composite income tax returns.

7 The following states exempt the distributive share of nonresident partners of investment partnerships (as defined in varying ways) from income taxation: Alabama, Arkansas, California, Georgia, Idaho, Illinois, Kentucky, Maryland, New Jersey, New York, North Carolina, Ohio, and Texas. A few states, such as Connecticut, Minnesota, and New Mexico, do not specifically exempt nonresident partners of investment partnerships but have rules that effectively allocate that income to the domicile of the nonresident partner. Massachusetts statutorily exempts nonresident limited partners of certain investment LPs but not other passthrough entities. Thus, any income tax withholding, jurisdictional consent waivers, or composite return requirements in these states may not apply to nonresident partners of qualified investments partnerships.

8 Currently, the following jurisdictions authorize the formation of series LLCs: Delaware (Del. Code Ann. tit. 6, section 18-215), District of Columbia (D.C. Code section 29-802.06), Illinois (805 ILCS section 180/37-40), Iowa (Iowa Code section 489.1201, effective January 1, 2009), Kansas (L. 2012, HB 2207, effective July 1, 2012), Nevada (Nev. Rev. Stat. section 86.161), Oklahoma (Okla. Stat. tit. 18, section 2005), Tennessee (Tenn. Code Ann. section 48-249-309), Texas (Texas Bus. Org. Code section 101.601 et seq., effective September 1, 2009) and Utah (Utah Code Ann. section 48-2c-606). Several other states, for example, Wisconsin, Minnesota, and North Dakota, have language in their LLC statutes about "classes" and "series" of membership interests, but no provisions for the layers or "firewalls" of protection that the typical series LLC act contains.


END OF FOOTNOTES

       Tax Treatment of LLCs/LLPs/LPs (LLEs) by States Imposing
           Net-Worth or Debt-Based Corporate Franchise Taxes
                         (as of April 1, 2012)
 _____________________________________________________________________

                   Apply
                 Franchise
     State         Tax2                       Note
 ______________________________________________________________________

 Alabama         Yes        LLCs, LLPs, and limited partnerships
                            subject to "business privilege tax" based
                            on modified net worth. Sliding rate scale
                            based on apportioned federal net income
                            with $100 min. and $15,000 max.
                            (generally). "Family limited liability
                            entities" subject to $500 cap. Ala. Code
                            section 40-14A-22.

 Arkansas        No1        But LLCs are subject to the minimum $300
                            franchise tax. Ark. Code Ann. section
                            26-54-104(5).

 Connecticut     No1

 Delaware        No1

 Georgia         No

 Illinois        No

 Kansas          Yes        For tax years after December 31, 2010, the
                            franchise tax is repealed. For prior tax
                            years, however, LLCs/LLPs were subject to
                            franchise tax on net capital accounts with
                            a $20,000 cap, but only if net capital
                            accounts located or used in Kansas were
                            $1,000,000 or more. Kan. Stat. Ann.
                            sections 79-5401(a)(2).

 Kentucky        No

 Louisiana       No         An LLE's election under the check-the-box
                            regulations to be taxed as a corporation
                            for federal income tax purposes has no
                            significance in determining whether the
                            LLE is subject to Louisiana franchise tax.
                            La. DOR Rev. Rul. No. 01-013 (Oct. 1,
                            2001). LLE electing S corporation or C
                            corporation status not subject to
                            franchise tax. La. Info. Bulletin No.
                            04-023 (Dec. 1, 2004); La. Priv. Ltr. Rul.
                            05-015 (Dec. 28, 2005).

 Massachusetts   No1

 Mississippi     No

 Missouri        No

 Nebraska        No

 New Jersey      No

 New Mexico      No1

 North Carolina  No         LLCs exempt from franchise tax by statute.
                            N.C. Gen. Stat. section 105-114(b)(2). A
                            corporate member is now required to
                            include the LLC's assets in its franchise
                            tax base if the corporate member or its
                            affiliates collectively own 50 percent or
                            more of the capital interests of the LLC.
                            However, LLC electing C corporation status
                            subject to franchise tax (2006 S.B. 1741).
                            Effective January 1, 2009, LLC electing S
                            corporation status subject to franchise
                            tax (2008 HB 2346).

 Ohio            Yes        Prior to July 1, 2005, and during the
                            five-year phaseout, "qualifying
                            passthrough entities" are subject to an
                            8.5 percent franchise tax on sum of
                            distributive shares of income to: (i)
                            corporations not paying the Ohio franchise
                            tax; (ii) partnerships which are
                            themselves investors in a passthrough
                            entity if the partnership's ultimate
                            owners are corporations not paying Ohio
                            franchise tax; and (iii) trusts which are
                            investors in passthrough s if the
                            beneficiaries are ultimately corporations
                            not paying Ohio franchise tax.
                            Entity-level tax can be avoided by filing
                            nonresident member jurisdictional
                            consents. Ohio Rev. Code sections 5733.40
                            and .41. Franchise tax credit calculations
                            include a corporation's proportionate
                            share from LLCs and LLPs. Ohio Rev. Code
                            section 5733.057.

 Oklahoma        No         LLCs are exempt from franchise tax by
                            statute. Okla. Stat. tit. 68 section 1201.
                            However, new legislation, S.J.R. 61,
                            imposes a business activity tax on the
                            "net revenue" of a taxpayer, including
                            LLCs and LLPs. For tax years 2010, 2011,
                            and 2012, the BAT liability is tied to the
                            amount of the taxpayer's 2009 franchise
                            tax liability.

 Pennsylvania    Yes        All LLCs except "restricted professional
                            companies" are subject to the capital
                            stock and franchise taxes. 15 Pa. Cons.
                            Stat. section 8925. Tax phasing-out by
                            2014.

 Rhode Island    No1

 South Carolina  No

 Tennessee       Yes        LLCs, LLPs, and LPs subject to franchise
                            tax of $0.25 per $100 of net worth. Tenn.
                            Code Ann. sections 67-4-2105(a), -2106(a).

 Texas           Yes        For reports due on or after January 1,
                            2008, LLCs and LLPs subject to Texas
                            franchise "margin" tax at 0.5 percent or 1
                            percent of lowest of: (1) 70 percent of
                            total revenue; (2) total revenue minus
                            cost of goods sold; or (3) total revenue
                            minus total compensation. Texas Tax Code
                            Ann. section 171.101.

 West Virginia   Yes        Generally, the tax is the greater of $50
                            or 0.34 percent (0.27 percent effective
                            January 1, 2012) of capital accounts, but
                            is scheduled to phaseout in 2015. W. Va.
                            Code sections 11-23-3(b)(2)(C) and
                            11-23-6.

 Wyoming         Yes        Generally, annual report license tax is
                            the greater of $50 or 0.02 percent of
                            assets employed in Wyoming. Wyo. Stat.
                            sections 17-16-1630(a) and 17-29-209(a).
 _____________________________________________________________________

                          FOOTNOTES TO TABLE

      1 Several states  impose a de minimis (for example,
 $150 Arkansas, $250 Connecticut, $250 Delaware, $500 Massachusetts,
 $50 New Mexico,  and  $500 Rhode Island) annual franchise tax/filing
 fee on LLEs.

      2 As a general rule,  states that follow  the federal
 income tax classification guidelines for LLEs will impose a net-worth
 or debt-based franchise tax  only on those LLEs treated as C
 corporations.

                       END OF FOOTNOTES TO TABLE

About Tax Analysts

Tax Analysts is an influential provider of tax news and analysis for the global community. Over 150,000 tax professionals in law and accounting firms, corporations, and government agencies rely on Tax Analysts' federal, state, and international content daily. Key products include Tax Notes, Tax Notes Today, State Tax Notes, State Tax Today, Tax Notes International, and Worldwide Tax Daily. Founded in 1970 as a nonprofit organization, Tax Analysts has the industry's largest tax-dedicated correspondent staff, with more than 250 domestic and international correspondents. For more information, visit our home page.

For reprint permission or other information, contact communications@tax.org