One form of business entity that is coming into increasing use is the Limited Liability Company (LLC). But that may change in Minnesota based on a ruling from an administrative law judge in that state.
Generally an LLC is a disregarded entity for federal tax purposes. Most states follow the federal guidelines though a couple of state require reporting. An LLC in California must file Form 568 and pay a minimum tax and possibly a gross receipts tax.
Minnesota, though, is about to take this one step further. The Gopher State will soon charge sales tax on transactions between single member LLC owners and the LLC. Joe Kristan calls this “an awful idea.” He’s right—Minnesota is effectively imposing sales tax for LLC owners when they move an object from their left hand to their right hand.
Hopefully the Minnesota Department of Revenue or the Minnesota legislature will reconsider this. Otherwise single member LLCs may become dinosaurs in the Land of 10,000 Lakes.