What is the usual pattern?
Most states start from the federal return. A disregarded LLC's income goes on the owner's state return; a partnership or S corporation files a state information return and owners report their shares. Owners pay tax in their state of residence, and in other states where the business earns income, with a credit at home for tax paid elsewhere in most cases. See pass-through taxation.
States with no personal income tax still require returns or reports from some LLCs, such as Texas's franchise tax report, even when no tax is due.
Which states tax the entity itself?
| State | Entity-level charge |
|---|---|
| California | $800 minimum tax and a gross receipts fee for LLCs; 1.5% tax for S corporations, $800 minimum |
| Texas | Franchise tax on LLCs and corporations above the revenue threshold |
| Tennessee | Franchise and excise taxes on most LLCs and corporations |
| Illinois | Replacement tax on partnerships and S corporations |
| New Hampshire | Business profits and enterprise taxes on most businesses |
| New York City | Unincorporated business tax on many LLCs; general corporation tax treats S corporations as regular corporations |
The District of Columbia also taxes many unincorporated businesses and does not recognize S status. See franchise tax explained.
How are non-resident owners taxed?
A state where the business earns income taxes non-resident owners on their share of that income. To collect it, many states require the partnership or S corporation to withhold tax for non-resident owners, or allow a composite return paying tax for all of them together. Owners may still need to file their own return in that state.
Check each state's due dates, which often match the federal partnership and S corporation deadline of March 15.
What does an example look like?
A two-member LLC based in New Jersey, with one member living in New Jersey and one in New York, sells to customers across the US. New Jersey taxes the business income apportioned to New Jersey and requires the LLC to pay tax for the non-resident member's share, or file a composite return. The New York member reports their share in New York as a resident and claims a credit for New Jersey tax on the same income. Each state where the LLC has nexus may require its own return.
What is a composite return?
A single return a partnership or S corporation files on behalf of its non-resident owners, paying their state tax together, so each owner does not have to file in that state. It is optional in many states and can be simpler, but sometimes taxes at the top rate.
How is income split between states?
A business operating in several states apportions its income among them, most often by the share of sales delivered to customers in each state. Each state then taxes its share. Having nexus for income tax in a state depends on that state's rules, and can arise from employees, property or significant sales there. See physical vs economic nexus.
What should you check?
List where the business operates and sells
Employees, property and customers by state.
Check each state's entity rules
Returns, fees and any entity-level tax.
Check owner obligations
Non-resident returns, withholding or composite filing.
Consider a PTET election
Where available. See pass-through entity tax elections.
What about foreign owners?
States are generally not bound by federal tax treaties. A foreign-owned LLC with activity in a state may owe that state's taxes even when it owes no federal income tax. An LLC with no activity outside its formation state, such as one in Wyoming, usually has little state income tax exposure.
Doing business in more than one state?
We work out which states can tax your business and its owners, file the entity and owner returns, and claim credits so income is not taxed twice.
Questions people ask
Do LLCs pay state income tax?
In most states the owners pay on their share, but many states also charge the LLC itself a tax or fee, such as California's $800 minimum tax.
Do all states recognize S corporations?
Most do, but some, such as the District of Columbia and New York City for its corporate tax, do not fully recognize S status.
Do I pay state tax where my LLC operates or where I live?
Usually both: where the business earns income, and in your home state, with a credit for tax paid elsewhere.
Are state taxes affected by tax treaties?
Generally no. States are not bound by federal income tax treaties.
Sources
Every fee, date and rule on this page was taken from these official and primary sources.
- California Franchise Tax Board: Limited liability company
- Texas Comptroller: 2026 franchise tax report forms and no tax due threshold
- Tennessee Department of Revenue: franchise and excise tax
Rules and fees change. If you are reading this long after October 1, 2026, confirm the figures with the source before you rely on them.
Related guides
More in Business tax by entity type
This guide is general information. It is not tax or legal advice for your situation.