State tax issues also need to be taken into account. States generally follow the federal treatment of PTEs for income tax purposes. However, some states, such as New Hampshire, treat PTEs much like corporations for income tax purposes. Others, such as Ohio and Texas, may impose "franchise" or "business activity" taxes on them. Certain states, including California, impose separate taxes on LLCs but not partnerships or other forms of PTEs.
If cross-border activities are contemplated, equal care needs to be taken, needless to say, in considering the potential international tax consequences of using a PTE. The legal form of the entity is extremely important here. For example, many foreign countries treat LLCs as corporations and, in some cases, may do the same with limited partnerships.
As the statistics show, in many cases the advantages of pass-through treatment may well outweigh the disadvantages for many taxpayers. If, as expected, the current preferential tax treatment for corporate dividends expires at the end of next year, taxpayers may have an even greater incentive to consider the PTE option.