Once the election is made, it is irrevocable and binding on all the qualified entity’s partners, members or shareholder. The election can only be made on an original, timely filed return. The annual election to pay the CA PTET can be made without consent of all the partners, members or shareholders. The 9.3% elective tax is paid on the sum of the pro rata shares or distributive shares of net income of any of its partners, shareholders or members that consent to the election. Stand-alone disregarded entities and corporations are precluded from electing to pay the tax but having such entities as partners/shareholders does not preclude an otherwise qualifying entity from being able to elect into paying the CA PTET. General partnerships also meet the qualifications for the CA PTET election. Flow-through entities include S corporations, limited liability companies, limited liability partnerships or limited partnerships (hereinafter “qualified entities”). A qualified entity is a pass-through entity that does not have a partnership as an owner, is not part of a combined group, and is not a publicly traded partnership.Īll flow-through entities that are qualified entities can elect to pay the CA PTET. The CA PTET, with its high tax rate (9.3%), provides qualified taxpayers with an opportunity to obtain some tax relief regarding the federal SALT Cap.Ī qualified taxpayer is either an individual, fiduciary, trust or estate as defined by California Revenue and Tax Code Section 17004 (excluding partnerships) that is a partner, shareholder or member of a qualified entity that consents to have their pro rata share or distributive share of income calculated in accordance with California’s personal income tax (Part 10) or corporate income tax (Part 11) included in the entity’s net income subject to the 9.3% elective tax. California recently issued guidance on the CA PTET in the form of FAQ Bulletins. As the CA PTET is an elective tax, it is similar to that of many other states with a pass-through entity tax however, it differs on who is required to consent to make the election, what portion of income is subject to the tax, who can claim the credit and the nature of the credit allowed (refundable v. The CA PTET is in addition to, and not in place of, any other tax or fee that may apply to the entity. ![]() The California pass-through entity tax (“CA PTET”), also known as the Small Business Relief Act, is effective for taxable years beginning on or after Januand will sunset on Decem(or January 1 of the tax year after any repeal of Internal Revenue Code Section 164(b)(6)). With the goal of providing relief to small businesses “facing unprecedented economic hurdles due to COVID-19,” California in Assembly Bill 150 joined the numerous states that have enacted a pass-through entity tax. ![]() Outsourced Accounting, Finance, Tax & Advisory for Startups.Distressed Collateral Monitoring for Real Estate Lenders.Center for Individual & Organizational Performance. ![]() EA RESIG – Real Estate Fund Administration.
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