FOR LIVE PROGRAM ONLY Multistate Partnerships: Mastering State Taxation of Corporate Partners WEDNESDAY, OCTOBER 26, 2016, 1:00-2:50 pm Eastern IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours . To earn credit you must: • Participate in the program on your own computer connection (no sharing) – if you need to register additional people, please call customer service at 1-800-926-7926 x10 (or 404-881-1141 x10). Strafford accepts American Express, Visa, MasterCard, Discover . Listen on-line via your computer speakers. • Respond to five prompts during the program plus a single verification code . You will have to write down • only the final verification code on the attestation form, which will be emailed to registered attendees. To earn full credit, you must remain connected for the entire program. • WHO TO CONTACT DURING THE LIVE EVENT For Additional Registrations : -Call Strafford Customer Service 1-800-926-7926 x10 (or 404-881-1141 x10) For Assistance During the Live Program : -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.
Tips for Optimal Quality FOR LIVE PROGRAM ONLY Sound Quality When listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, please e-mail sound@straffordpub.com immediately so we can address the problem.
Multistate Partnerships: Mastering State Taxation of Corporate Partners October 26, 2016 Ned Leiby JoAnna Simek Dátus Tomasovich Jennifer A. Zimmerman KPMG LLP BKD, LLP KPMG LLP Horwood Marcus & Berk nleiby@kpmg.com jsimek@bkd.com dtomasovich@kpmg.com jzimmerman@hmblaw.com
Notice The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 4
Dated Material THE MATERIAL CONTAINED IN THESE COURSE MATERIALS IS CURRENT AS OF THE DATE PRODUCED. THE MATERIALS HAVE NOT BEEN AND WILL NOT BE UPDATED TO INCORPORATE ANY TECHNICAL CHANGES TO THE CONTENT OR T0 REFLECT ANY MODIFICATIONS TO A TAX SERVICE OFFERED SINCE THE PRODUCTION DATE. YOU ARE RESPONSIBLE FOR VERIFYING WHETHER OR NOT THERE HAVE BEEN ANY TECHNICAL CHANGES SINCE THE PRODUCTION DATE AND WHETHER OR NOT THE FIRM STILL APPROVES ANY TAX SERVICES OFFERED FOR PRESENTATION TO CLIENTS. YOU SHOULD CONSULT WITH WASHINGTON NATIONAL TAX AND RISK MANAGEMENT -TAX AS PART OF YOUR DUE DILIGENCE. 5
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. 6
STATE TAXATION OF PASS-THROUGH ENTITIES Key Issues and Current Developments 7
How We Define “Pass - Through Entities” Partnerships General Partnerships Limited Partnerships Joint Ventures Alliances Private Equity Funds Hedge Funds Multi-member LLCs taxed as partnerships SMLLCs (“disregarded entities”) S corporations Specialized Entities: RICs, REITs, REMICs, Cooperatives and Some Trusts (Note: we will reference “PTEs” and “partners”) 8
Entity vs. Aggregate Example of Structure & Various Chains of Ownership CORP Shareholders (Foreign & Limited Partners Tax-Exempt) General Blocker Corp Partner (The “Fund”) Limited Partnership (“LP”) LLC LLC/LP OP,LP (Operations) 9
Brief History of PTEs The last 20 years reflect a substantial increase in the use of PTEs The increase was driven by federal tax law and state entity laws Corporate income tax was declining at the same time government revenue needs were increasing Pass-through planning was led by federal tax benefits: avoidance of double taxation, maximization of losses and incentives and allowance for flexibility 10
Corporation vs. Partnership – State Taxation Differences Income tax generally not imposed at the entity level Composite return distinction Partnership may be required to file a return in states where partner lives even if entity has no other connection with the state Generally reporting on a separate entity basis (i.e., no combined reporting) Partnership tax law generally articulated under individual tax law, not corporate tax law Watch for differences in apportionment/allocation, depending on partner type. Multi-tiered structures present additional complexities, pitfalls, and opportunities 11
State-Federal Conformity Issues 12
State Conformity Overview The issue of federal-state conformity actually raises two separate questions: #1 - Characterization : Does the state’s tax law follow the federal characterization of the PTE under the “check -the- box” rules? #2 - Pass-through Treatment : Does the state’s tax law follow the federal tax treatment of income of “partnerships” and “disregarded entities”? 13
#1 – Characterization Most states respect entity characterization under federal “check -the- box” regulations An LLC that is a disregarded entity for federal tax is a disregarded entity for state tax purposes Some Notable (Income Tax) Exceptions: MA (large S corporations and SMLLCs are taxable as S Corp if owned by S Corp) NH (all PTEs taxed at entity level, even sole proprietorships) RI (corporate-owned SMLLC is taxed as a C Corp) 14
#2 – Pass-Through Treatment Most States Also Follow Federal Pass-through Treatment No tax on the PTE, but tax on the partners Some Notable Exceptions and Variations: Entity-level taxes (IL, NH, ME, OH, OK, TN, TX) Don’t forget local jurisdictions (Philly, DC, NYC) Entity-level capital stock and fees (NY, PA, others) Withholding/estimated tax/partner consent rules (many) Composite filing rules (many) Some States Also Provide Exemption for Investment Partnerships and Their Partners 15
Reminder of “Other” Filings Remember that PTEs are generally not disregarded for non-income taxes, including: State registrations and filing fees Non-Income Taxes: Most Sales and Use Taxes Some Franchise / Privilege Taxes Excise Taxes (“sin taxes” – tobacco, alcohol, etc.) Property Taxes Real Estate Transfer Taxes Employment Taxes 16
Corporation vs. Partnership – State Taxation Differences Different nexus rules may apply Factor presence/economic nexus may apply only to corporations (NY) Tax base Depreciation COD income IRC § 108(i) conformity Step-ups/downs (IRC § 754) Different apportionment factor weighting and sourcing Examples NY-Partnership equally weighted 3 factor and cost of performance for sourcing NY-Corp single sales factor, market based sourcing CT -2015 different, aligned 2016 PA-differences 17
Conformity Conflicts “Jurisdictional Mismatches” may occur. Example: – PTE operates solely in NH; 70% Multistate Business corporate partner domiciled in Corporate Partner Domiciled in UDITPA UDITPA state, conducts business Partner State in many states; PTE distributive share is “non - business” income $ Distributive Share = – NH: Applies entity-level tax on Non-business Income 70% PTE (BPT & BET) using water’s edge combination apportionment factors (no business/non-business distinction) NPH PTE – Domicile state: taxes entire 70% LLC share of “nonbusiness” income to 100% in NH the Partner in state of commercial domicile 18
Entity vs. Aggregate Compliance, Reporting and Planning Considerations Business/Nonbusiness Unitary vs Apportionment Nexus Non-unitary Determination 19
Nexus Issues Affecting Partners 20
Recommend
More recommend
