Pass-through entities are the hybrids of business taxation: they are business entities for which most of the tax liability is attributable to the amount of individual income tax imposed on partners, owners or shareholders. But states are applying corporate income tax concepts to pass-through entities that are operating in more than one jurisdiction, according to preliminary results of the Bloomberg BNA 2016 Survey of State Tax Departments.
This year Bloomberg BNA asked each state if it requires partnerships to apportion income using the same apportionment rules as those used by corporations. A majority of states have responded that they do, the preliminary results show. Among those states were Alabama, Pennsylvania and Virginia. North Carolina was also included in this group, but it noted that “… whether a corporate partner’s share of the partnership’s net income is classified as apportionable income or nonapportionable income depends on the facts and circumstances.”
Among the states that said they require partnerships to apportion income using rules for pass-through entities were Connecticut, Missouri and New Jersey.
California had a mixed response, noting that Cal. Code Regs. § 25137-1 provides for partnership apportionment rules. But that regulation uses the same standard for determining business or nonbusiness income that is used for corporations, the state noted.
The full and final results of the Bloomberg BNA Survey will be released on April 22.
Continue the discussion on LinkedIn: Should corporate income tax concepts be applied to pass-through entities operating in more than one state?
For more information about state tax issues, sign up for a free trial on Bloomberg BNA’s Premier State Tax Library.
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