Important PTET Deadlines Quickly Approaching

The Tax Cuts and Jobs Act of 2017 brought no shortage of changes to the state and local tax (SALT) world, the most notable of which was the SALT cap limitation. This change limited the amount of state and local tax an individual could deduct on a personal income tax return and significantly affected individuals living in states with high income tax rates. To mitigate the impact of the SALT cap limitation, many states implemented state-level income tax on flow-through entities, known as pass-through entity taxes (PTET).

The end of life is drawing near for the SALT cap limitation, which is scheduled to expire in 2025. This means summer 2024 could be busy for taxpayers hoping to maximize PTET opportunities.

Colorado and Virginia PTET Deadlines

Colorado and Virginia both adopted state PTETs with retroactive applicability, and due dates related to elections are quickly approaching.

• The Colorado retroactive election includes tax years 2018-2021. The election is made by filing an amended composite return through Revenue Online. The retroactive reporting closes June 30, 2024.
• Virginia’s retroactive election only dates back to tax year 2021. The retroactive 2021 PTET return must be filed via the Virginia Tax Online Services for Businesses on or before Sept. 16, 2024 and all tax paid in full to be eligible for the election.

The applicability of PTETs in general is complex and nuanced, and the addition of a retroactive application gets even more complicated. Neither state requires the individual partners and/or shareholders to file amended returns; rather, Colorado will automatically distribute the credits to the individual accounts and issue refunds, while Virginia requires the cumulative credit be applied on the 2023 return. The credit treatment may impact the 2023 individual reporting and could trigger unexpected consequences both at the state and federal level. Taxpayers should be diligent in evaluating the retroactive elections to their specific set of facts to ensure the expected benefit is realized.

North Carolina PTET Deadlines

While not a new retroactive election, North Carolina amended its PTET statute to allow certain trusts and corporations to be partners in a taxed partnership effective for taxable years beginning on or after Jan. 1, 2022. A pass-through entity that was previously precluded from making the North Carolina PTET election because of having ineligible partners may file an amended return making the election on or before July 1, 2024.

California PTET Deadlines

California requires taxpayers expecting to elect into the California PTET for the current year to make an estimated payment by June 15 to “preserve” the right to make the election.

Other Key Deadlines

Many states with PTETs require mandatory quarterly estimated payments. Unlike California, the estimated payments are not a prerequisite to make the election, but rather are mandatory to avoid late payment penalty and interest. States can be lenient on penalty and interest related to PTET estimated payments in the initial enactment year, but as years three and four approach for many of these regimes, the same tolerance will likely not continue.

Taxpayers and their advisors should be cognizant of the upcoming election and/or payment due dates. Utilize the summer months to determine where a PTET election should be made and the administrative compliance required in order to maximize the desired benefit of such election.

KSM’s State & Local Tax Group follows legislative activity across the country. If you have questions about how these or other pieces of legislation might affect your business, please contact your KSM advisor or complete this form.