This paper studies the coevolution in the United States of the fall in the corporate sector labor share and the rise of the share of business activity organized in tax-preferred, pass-through form. We find that reallocating activity to the form it would have taken prior to the Tax Reform Act of 1986 accounts for 30% of the decline in the corporate sector labor share between 1978 and 2017. Our adjustments attribute 15% of the decline to labor income recharacterized as profits among S-corporations within the corporate sector. The remaining 15% is due to the rise in labor-intensive business activity that elects partnership rather than corporate form. In our adjusted series, the labor share decline in the United States is primarily a manufacturing sector phenomenon that was offset—fully until 2000 and partly since then—by the rise of services.