Taxation of Series LLCs in Texas: Bigger Isn't Always Better in the Lone Star State.

Authors

Alyson Outenreath

Abstract

Series Limited Liability Companies (series LLCs) are not yet widely popular as an entity of choice; but just as it took many years for traditional LLCs to become widely used, there could also come a day when series LLCs are the “go-to” entity of choice. One development in the law that will aid in this process is greater certainty in state taxation of series LLCs. Texas has provided some guidance with respect to the taxation of series LLCs for Texas franchise tax purposes after the comptroller’s issuance of Comptroller Private Letter Ruling 201005184L. In this ruling, the comptroller concluded that each series of a series LLC should be aggregated and treated as a single taxable entity for Texas franchise tax purposes. Although the comptroller should be commended for the ongoing efforts to provide meaningful and timely guidance to taxpayers, the comptroller’s policy concerning the taxation of series LLCs is not a correct or sound tax policy. This is because the comptroller’s policy does not have statutory support and creates constitutional and procedural issues. The comptroller’s policy also treats similarly situated taxpayers differently, and it fails to significantly lessen administrative burdens for either the comptroller or taxpayers. To fix these issues, Texas should reform the law and adopt separate tax treatment for series LLCs—each series of a series LLC should be treated as a separate taxable entity for Texas franchise tax purposes. This change would be similar to the treatment adopted by several other states and the treatment adopted for federal income tax purposes.

Publisher

St. Mary's University School of Law

Recommended Citation

Alyson Outenreath, Taxation of Series LLCs in Texas: Bigger Isn't Always Better in the Lone Star State., 45 St. Mary's L.J. (2014).
Available at: https://commons.stmarytx.edu/thestmaryslawjournal/vol45/iss2/2