Electing Out of Partnership Returns: IRC Sec.761

[Tax One]

An LLC (two members) owning a residential rental property filed a Sec.761 election. The state in question recognizes a Sec.761 election. However, the state tax department says an election with respect to a rental property is a non-qualifying activity. At issue (apart from late or non-filing) is a state minimum tax applicable to entities that are recognized (corporations, partnerships). Advice please.

[John of PA]

must be no activity

In PA, such an election can only be made if the entity is inactive. That means a P&L that shows zero income, and a balace sheet that shows no activity (no change in assets at all).