Louisiana Offers C Corporation Election for Pass-through Entities

July 2019 | Article

By Stacey Roberts and Sara Ptacek

Louisiana recently signed a new law effective for tax periods beginning on or after Jan. 1, 2019, that could impact pass-through entities filing in the state of Louisiana.

Pass-through entities are now eligible to elect to be taxed as a C corporation when filing their Louisiana income tax returns. With this election, the electing pass-through entity does not pass the Louisiana reportable income out to their shareholders, partners or members. Instead, the electing entity pays any Louisiana state tax due on the total Louisiana reportable income at the following rates:

  • 2% on the first $25,000
  • 4% on $25,001 to $100,000, and
  • 6% on income above $100,000

The election to file as a C corporation must be made in writing and can be made at any time during the current tax year, or before the 15th day of the fourth month following the close of that tax year.

Should an electing entity want to terminate this election, it can apply to do so, but it will require shareholders, partners or members holding more than 50% of the entity ownership to consent to the termination. And, elections will remain in effect until the election is approved for termination by the designated representative of the State of Louisiana.

If the election is made, pass-through entities are allowed a state tax deduction on their federal returns equal to the amount of Louisiana tax paid. However, for nonresident shareholders, partners or members of pass-through entities doing business in Louisiana, this tax is not eligible to be included in the calculation of a shareholder’s, partner’s, or member’s resident state credit for taxes paid to other states. 

In addition, if the election is made, a shareholder, partner or member of an electing pass-through entity does not include any Louisiana income or loss from the entity on their personal Louisiana tax return. However, the Louisiana sourced income or loss will be reported by a shareholder, partner or member on their federal returns. And, in the event that the Louisiana return was not properly filed as a C corporation by the electing pass-through entity, the net income or loss not properly reported at the pass-through entity level becomes subject to potential taxation at the shareholder, partner or member level for Louisiana reporting and compliance purposes.

Contact your Eide Bailly professional or a member of our State and Local Tax Team to learn more.

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