State Taxation of Partnership Interest Sales: Recent Legislation, State Apportionment and Allocation Methods, Business vs. Nonbusiness Income

In the simplest circumstances and former times, a taxpayer might only be taxed on the sale of a partnership interest in their resident state. Applying market-based sourcing rules, many states determine where customers reside or whether a taxpayer is engaged in business activities within the state to decide if a sale is taxable by the state.

For SALT practitioners and multistate businesses, these determinations are onerous. As with all SALT matters, state treatment of partnership interest sales varies. Treatment of the gain in specific states differs based on the type of members or partners (individual, corporate, etc) that comprise the LLC or partnership, apportionment and/or allocation rules, and whether the sale is treated as business or nonbusiness income. Unfortunately, the lack of consistency among states can subject these transactions to double taxation.

Legislation in this area is fluid. Recently, South Carolina allowed a resident taxpayer to apportion the gain on the sale of a partnership interest. The pass-through entity was engaged in business in multiple states. "The proportion of the Taxpayer's business carried on within South Carolina was 2.4% ... ." (PLR #24-1). 

Multistate pass-through entities and their advisers need to grasp the rules surrounding state taxation of the sales of partnership interests. 

Listen as our authoritative panel of state and local income tax veterans examines the inconsistent but common guidelines states invoke to tax the sale of partnership interests. 

I. SALT taxation of partnership interest sales: introduction

II. Identifying the seller

III. Which states may tax the gain

IV. Apportionment rules

V. Business vs. nonbusiness income

VI. Taxing the sale

A. Entity-level taxation

B. Treatment as a single-member LLC

VII. Technical developments affecting a sale

The panel will cover these and other key issues:

• Determining apportionment and allocation rules for specific states
• State trends and recent rulings impacting the sale of partnership interests
• Identifying specific state criteria for taxing nonresident sales of partnerships
• How potential double state taxation affects the disposition of a partnership

After completing this course, you will be able to:

• Determine states' methods for taxing sales of partnership interests
• Ascertain how certain partnership sales can be subjected to double state taxation
• Identify the seller of a partnership interest as defined in certain states
• Decide how current state legislation impacts sells of partnership interests

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of SALT taxation, nexus and apportionment as it applies to multi-state businesses.

  
  

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