State Taxation on the Sale of Pass-Through Entity Interests

Sourcing Issues, Tiered Entities, Apportionment vs. Allocation, Residents vs. Nonresidents, Circumventing the SALT CAP

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Tuesday, November 22, 2022

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Course Materials

This webinar will explain the issues practitioners encounter when reporting and taxing the sale of an interest held in a pass-through entity (PTE). Our panel of SALT veterans will discuss how types of owners, residency, and various state approaches (or lack thereof) impact these calculations, including examples of taxation in specific states.

Description

Determining how and if the 50 states and D.C. tax income is difficult enough. SALT professionals are responsible for matching income from the sale of PTEs into existing, nonexisting, and vague state criteria.

Most states separate income into business (apportionment) and non-business (allocable) income categories. However, even states that use these classifications differ in their definitions of business and non-business income. Add to this problem the fact that owners of these entities may be residents or nonresidents, individuals or entities, or even more problematic, tiered entities.

A new consideration is the prospect of paying tax on the sale at the entity level. Many states have adopted entity-level taxes to circumvent the SALT cap. Paying tax at the entity level on these sales could significantly reduce the tax burden for these entities' owners.

Listen as our panel of SALT experts discusses the standard methods states employ to tax the sale of partnership and S corporation interests. They will discuss determining nexus, sourcing issues, and asset sales vs. stock sales, as well as how the new ability to pay tax at the entity level in many states impacts state taxation of the sale of PTEs.

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Outline

  1. Flow-through entities
  2. Determining nexus
  3. Determining state taxable income
  4. Specific sourcing issues
    1. Gain on sales of interests
    2. Classification as an asset sale
    3. Sales of intangibles
    4. Other issues
  5. Other entity-level taxes
  6. Circumventing SALT cap

Benefits

The panel will review these and other critical issues:

  • Which states continue to recognize technical terminations and the related SALT issues
  • Which states are a member of the MTC (Multi-State Compact) and the related PTE sales methodology
  • How asset sales and stock sales treatment differs among states
  • How residency impacts state reporting of disposition income
  • How ownership type (individual, entity, tiered entity) affects state taxation of PTEs

Faculty

Montorio, Nicholas
Nicholas Montorio

Managing Director
BDO USA

Mr. Montorio advises the firm’s clients on a variety of multistate tax matters involving business activity taxes...  |  Read More

Spengler, Richard
Richard W. Spengler, CPA
Managing Director
BDO USA

Mr. Spengler's main area of focus is state income and franchise taxes with significant experience in the design and...  |  Read More

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