Reforming the Tax Treatment of S-Corporations and Limited Liability Companies Can Help States Finance Public Services

By Michael Mazerov

Businesses organized as subchapter S Corporations or Limited Liability Companies generate roughly one-fourth of all business receipts.  Yet 19 states impose only nominal taxes on these entities even though they benefit from state services just as businesses that are subject to state corporate income taxes do. 

These…states should consider imposing meaningful levies on S-Corps and LLCs as a source of additional revenue to help close the major budget gaps many of them are facing.  States that impose significant taxes and fees on S-Corps and LLCs should determine whether reforms are warranted [to ensure they do] not treat LLCs more favorably than S-Corps.

The full report is posted to:
http://www.cbpp.org/cms/index.cfm?fa=view&id=2771
http://www.cbpp.org/files/4-8-09sfp.pdf  10pp.