Final answer:
The 'S' in 'S-corps' indicates the type of corporation that does not have to pay federal corporate income taxes, thereby having favorable tax treatment by allowing income to pass directly to shareholders.
Step-by-step explanation:
The correct answer to the question is 'S-corps have favorable tax treatment because a qualifying firm does not pay corporate income taxes.' The S-corporation structure allows the company to pass income directly to shareholders to avoid the double taxation typical of C-corporations, where both the corporation and the shareholders have to pay taxes on the profits. Though S-corps may still be subject to other forms of taxation such as property tax, payroll tax, excise tax, customs tax, and value-added tax, their special status exempts them from the corporate income tax that C-corporations face. In context, this means that while companies are subjects to various taxes imposed by state or local governments, S-corps are designed to reduce the burden of federal corporate income tax. Additionally, advancements in technology may provide methods to legally reduce exposure to certain taxes.