Why would a pass-through entity voluntarily elect to be taxed at the entity level?

Mainly because of the individual SALT $10,000 limitation. State pass-through entity taxes are now viewed as a workaround to the $10,000 limitation by imposing an income tax directly on the pass-through entity, which is a “trade or business.”  The pass-through entity is not limited to the amount of state taxes that it can deduct for federal purposes. Thus, a state tax on pass-through entity income now becomes a deduction for the pass-through entity for federal tax purposes.

States that have adopted the PTET are as follows:
Alabama
California
Idaho
Louisiana
Maryland
Minnesota
New Jersey
New York
Oklahoma
Rhode Island
South Carolina
Wisconsin

Effective for years 2022 or later, the following states have adopted the PTET level tax:
Arkansas
Arizona
Colorado
Connecticut**
Georgia
Illinois
Oregon

**Connecticut provides a mandatory entity-level tax election and not elective

States with proposed PTET bills:
Massachusetts
Michigan
North Carolina
Pennsylvania

New York PTET

It is important to note, for the New York PTET election to be taxed as a PTET, your application is due October 15, 2021. information regarding the New York election is outlined below:

Log in to the eligible entity’s New York State Business Online Services account.

• If the entity does not currently have a New York State Business Online Services account, the authorized person of the entity will need to create an account at this website.

• Once you have logged into the Business Online Services account, select the ≡ Services menu in the upper-left corner of the Account Summary homepage.

• Depending on the type of entity for which you are making the election, select Corporation tax or Partnership tax, then select PTET web file from the expanded menu (see example below).

• On the Form Selection page, select Pass-Through Entity Tax (PTET) Annual Election.

• Once the annual election form is filled out, the authorized person must electronically sign and attest to having the entity’s authorization to file the election.

As is mentioned above, the election must be filed no later than October 15, 2021, to be effective for the current calendar year. Due to the possibility of technical issues in setting up a Business Online Services account and/or making the PTET election, businesses that do encounter problems in setting up an account or making an election will need to call the New York Department of Taxation and Finance to resolve them.

PTET election due dates vary from state to state; contact us today to guide you through the process.

Maria D. Stromple, CPA, MST

Maria is a Partner at Wilke & Associates, servicing closely-held businesses in manufacturing, real estate, transportation/logistics, technology industries, and high net worth individuals and executives in delivering effective tax strategies.