On March 31, 2023, Governor Andy Beshear signed House Bill 5 (HB 5) into law, supplementing the recently enacted elective pass-through entity (PTE) tax adopted in House Bill 360 (see Tax Alert 2023-0571). HB 5 makes a number of clarifying changes, including:

• Adding statutory definitions for entities, owners, ownership and the designation of an authorized person¹ to make the PTE tax election
• Providing that the PTE tax election is made annually and, once made for a tax year, is irrevocable and binding on all entity owners
• Clarifying that the PTE tax will be imposed on the electing PTE instead of being paid on behalf of the PTE's owners
• Clarifying that the tax base and apportionment computations for the electing PTE will continue to be made as provided by Kentucky law²
• Providing that for 2022, elections can be made after March 31, 2023, but before August 31, 2024, and clarifying that no interest or penalties will be imposed
• Providing that, for both 2022 and 2023, electing PTEs will not be required to make estimated payments and no penalties will be imposed
• Making the individual PTE tax credit refundable

HB 5's provisions on the elective PTE tax became effective upon the Governor's signature.

Implications

HB 5 makes technical corrections, so that Kentucky's elective PTE tax complies with the guidance issued in IRS Notice 2020-75. It is anticipated that the Kentucky Department of Revenue will be issuing guidance and forms in the coming weeks and months.

———————————————

Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor

———————————————
ENDNOTES

¹ Defined as any individual with the authority from the electing entity to bind the electing entity or to sign returns on its behalf.

² Ky. Rev. Stat. 141.206.