Limited Liability Partnerships and the New Texas Margin Tax
Monday, July 23, 2007
Contributed by: D. Chris Harkins
In my last article, I introduced you to the new Texas Margin Tax and identified Family Limited Partnerships as a possible Texas business entity that will escape taxation under the current law. FLPs are not the only entities that enjoy liability protect yet will not be taxed on its margins. As the enacted version of 2006 House Bill 3 currently reads, registered Limited Liability Partnerships (LLPs) consisting of all natural persons as partners should also escape the Margin Tax.
The apparent reason that Limited Liability Partnerships may be exempted from Margin Tax is that LLPs are a species of general partnership and general partnerships with members 100% comprised of natural persons are not subject to the tax. In other words, the definition section of the tax reform legislation listed those entities that are not subject to the tax. By definition, Registered LLPs appear to fit into the definition of an exempt entity.
This anomaly does not square with the Sharp Commission's stated intent to tax all entities that receive limited liability from the State. It appears to be a legislative oversight and we predict that it will be rectified soon (if not in the current legislative Session). For this reason, we do not recommend Registered LLP's solely for the purpose of avoiding the new Margin Tax. While the current law appears to exempt this liability protected Texas entity, we are fairly confident that the Texas Legislature will "correct" that oversight.
This column is published for informational purposes only. It should not be construed as legal advice and is not intended to create an attorney client relationship. The views expressed are those of the author and do not necessarily reflect the views of the author's law firm or its individual partners.
