State Taxation of S Corporations: Varying State Treatment, Composite Returns, PTE Elections, Recent Developments

Although practitioners are familiar with federal treatment of S corporation status, state treatment of S corporations varies dramatically. Most states recognize the federal S corporation election; however, New York requires a separate Subchapter S election. New Jersey only recently agreed to recognize a valid federal S corporation election for state purposes.

Not all states allow flow-through treatment of S corporation income. The Louisiana Department of Revenue explains, "Technically, an S Corporation is a pass-through entity but Louisiana income tax law does not recognize Subchapter S corporation status. An S corporation is required to file income tax in the same manner as a C corporation." However, in certain cases, some or all of an S corporation's Louisiana income can be excluded from the corporate return and taxed to the shareholders.

Most states have adopted a pass-through entity tax workaround to circumvent the SALT cap that includes S corporations. Some states tax the S corporation itself. Other states provide a credit to shareholders to offset the tax paid. S corporations and shareholders need to understand when making PTE elections in specific states is beneficial. The nuances of SALT taxation of Subchapter S corporations are complex. SALT practitioners and S corporation shareholders need to grasp the ramifications of S corporation status in various states to minimize taxes paid by these entities and their owners.

Listen as our panel of flow-through experts highlights the significant difference in S corporation treatment in specific states.

1. State taxation of S corporations
2. States' methods of treating Subchapter S status
3. States recognition, or non-recognition, of the federal S corporation election
4. Nonresident treatment of shareholders by states
5. Privilege, excise, and other taxes imposed on S corporations
6. Pass-through entity treatment by states
7. Composite returns
8. Recent developments in state taxation of S corporations
   • New Jersey's new opt-in/opt-out regime
   • Other developments

The panel will cover these and other critical issues:

• States that do not recognize the federal Subchapter S election
• Varying state methods for taxing S corporation income
• New Jersey's recent recognition of federal S corporation status and its opt-in/opt-out rules
• State PTE workarounds for S corporations

Learning Objectives

After completing this course, you will be able to:

• Identify states that do not recognize the federal S election
• Determine state methods for taxing nonresident S corporation income
• Decide what current developments in SALT impact S corporations
• Ascertain common state PTE workarounds for S corporations

• 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.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.