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In Hawaii We Love Our Corporations (part 2)

Pass-through Businesses Account for More than $1.6 Trillion of Payroll

By Kyle Pomerleau, Richard Borean of the Tax Foundation

For this week’s tax map, we’re continuing our series on pass-through businesses. For the first map of the series, check out our map from last week.

Sole proprietorships, S corporations, limited liability companies (LLCs), and partnerships are also known as pass-through businesses. These entities are called pass-throughs, because the profits of these firms are passed directly through the business to the owners and are taxed on the owners’ individual income tax returns.

Today, Pass-through businesses pay a significant role in the United States Economy. They account for 95 percent of all businesses, more than 60 percent of all business income, and more than 50 percent of all employment.

Pass-through employers are also a significant source of salaries and wages. In 2011, pass-through employers paid a combined $1.6 trillion in salaries and wages, or 37 percent of all private sector payroll.

The total value of payroll paid by pass-through businesses in each state varied depending on their prominence. For example, a significant amount of private sector payroll came from pass-through businesses in South Dakota (50.4 percent), Montana (48.8 percent), and Idaho (47.5 percent). In contrast, a small share of private-sector payroll came from pass-through businesses in Massachusetts (33.3 percent), West Virginia (33.1 percent) and Hawaii (31.7 percent).

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