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June 24, 2021
2021-1252

Thursday, July 15 | The new elective state pass-through entity taxes: A survey of the latest developments (1 pm ET)

The 2017 federal Tax Cuts and Jobs Act imposed a $10,000 annual limitation on the amount of state and local taxes (SALT) individuals can deduct in computing federal income taxes (the “cap”). An important exception to this cap is the retention of the deduction for SALT “… paid or accrued … in carrying on a trade or business.” While C corporations, whose income can only be derived from the provision of a “trade or business” are unaffected by the cap, it applies to individual owners of businesses organized as pass-through entities (PTEs) (e.g., partnerships, S corporations and certain limited liability companies ? each a PTE) since SALT is generally assessed at the individual, and not the entity, level.

As a workaround to the cap, some states, starting with Connecticut in 2018, enacted new taxes on PTEs that shifted the direct burden of PTE taxation from the owners to the entities and provided a credit against or an exclusion of the distributive share of PTE income subject to such tax from the related direct state income taxes on the owners. In response to a perceived ambiguity as to whether the IRS would respect the SALT cap workarounds, in November 2020 the US Treasury Department issued Notice 2020-75, indicating its intention to issue proposed regulations clarifying that a PTE computing non-separately stated taxable income or loss for federal income tax purposes could deduct these state PTE taxes imposed on its net income and that its individual owners’ SALT deductions would not be limited by the cap.

Following the release of Notice 2020-75, many states have enacted, or are considering enacting, similar entity-level PTE taxes. During this webcast, EY panelists will:

  • Provide an overview of various enacted or proposed state PTE-level taxes
  • Discuss the US federal income tax considerations of a state PTE tax election
  • Compare the many different state PTE level taxes, focusing on the states that have created an entirely new tax and those that have allowed affected owners to elect to treat PTEs as C corporations for state tax purposes
  • Discuss the ways these new state PTE tax laws mitigate the imposition of the two levels of tax through credits or income exclusions
  • Address the problems multistate PTE owners may face with the “other state tax credits” or “resident tax credits” in their home states for PTE taxes paid to nonresident states
  • Consider how PTE taxes affect corporate PTE owners
  • Examine selected industry issues and considerations of these state PTE taxes, notably the financial services and real estate sectors, which frequently operate in PTE form

Please join us for this 75-minute, interactive webcast. We welcome and encourage you to ask questions.

Date:                   Thursday, 15 July 2021

Time:                   1:00–2:15 p.m. EDT New York; 10:00–11:15 a.m. PDT Los Angeles

Registration:      View archive here.

Panelists

  • Carl Joseph, Indirect, State and Local Tax, Ernst & Young LLP, Sacramento, CA
  • Dale Y. Kim, Indirect, State and Local Tax, Ernst & Young LLP, New York, NY
  • David H. Kirk, Private Tax Leader, Ernst & Young LLP, Washington, DC
  • James Thomas, Indirect, State and Local Tax, Ernst & Young LLP, New York, NY

Moderator

  • Steve Wlodychak, Indirect, State and Local Tax, Ernst & Young LLP, Washington, DC

CPE credit offered: 1.4. Recommended field of study: Taxes. Learning objective: Understand the history of the state PTE-level tax workaround to the SALT deduction limitation; identify differences in the various state provisions and describe how making a state PTE-level tax election could affect your business; and explain federal and industry issues and considerations in making a state election to have the PTE taxed at the entity level. This intermediate level, group internet-based course has no prerequisites or advanced preparation. Final CPE award to be based on content, polling and length of participation. See CPE FAQ for more information.

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The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

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