Is it necessary for state business entity rules to follow federal tax rules?
Bear in mind the differences between state tax law and state business law. Whatever tax status you select for your entity beneath the federal check-the-box system, keep in mind that you may be considered a different type of entity for state business law purposes. This means that if you choose corporate tax treatment for a partnership, it will not necessarily bring corporate limited liability. A state normally treats the entity selected under federal check-the-box as the entity acknowledged for state tax purposes, but this is not always the case. The law of a state may agree to passthrough status for an entity like an S Corp or an LLC, but still enforce some sort of tax on the entity.
