Louisiana: Elective Pass-Through Entity Level Tax Enacted

Senate Bill 223, which was recently signed into law in Louisiana allows S corporations and other pass-through entities to elect to be taxed at the entity level, as if the entity was a C corporation. The election is authorized for tax years beginning on or after January 1, 2019. It must be made in writing and may be made at any time during the preceding or taxable year and on or before the 15th day of the fourth month after the close of the taxable year.  The election remains in effect until terminated by the Secretary of the Department of Revenue. Owners holding “more than one-half of the ownership interest in the entity” may request a revocation of the election.   

The tax levied on each electing pass-through entity is calculated applying a graduated rate, with the first $25,000 of Louisiana taxable income taxed at a 2 percent rate. The rate increases to 4 percent for taxable income above $25,000, but not in excess of $100,000, capping off at 6 percent for taxable income above $100,000. Individuals then exclude from their individual tax returns the net income or losses received from an entity that made the election and properly filed a Louisiana corporation income tax return.  Entities that file a composite partnership return are prohibited from making the election for the same tax year. Please stay tuned to TWIST as more states adopt elective pass-through entity level taxes.