NC PTE legislation expected soon
I'm writing to inform you that NCACPA, the NCDOR, and chairs of the Senate and House Finance committees have reached an agreement on NCACPA's proposed technical corrections to the state's Pass-Through Entity tax law. We expect legislation to be filed soon.
I will follow-up with a link to the PTE bill once it's filed and available on the General Assembly's website. In the meantime, below is a summary of the agreed upon provisions. The measure will:
Create a credit for taxes paid in another state for resident partners – Current law provides that where another state imposes tax directly upon an S-corporation rather than upon its shareholders, a resident shareholder may claim a credit for their pro rata share of tax paid by the S-corporation. No such benefit exists in the current law for resident partners of multi-state partnerships. Our proposal corrects this flaw and provides a corresponding benefit to resident partners of a partnership. This provision will be retroactive to January 1, 2022.
Allow tiered partnerships to become a Taxed PTE – Current law limits the election to become a Taxed PTE to those partnerships wholly owned by individuals, estates, trusts, and certain tax-exempt organizations. Our proposal adds entities classified as partnerships for federal income tax purposes to the list of eligible owners. This provision will be retroactive to January 1, 2022.
Create two deductions for Taxed PTE owners – Effective January 1, 2023, a Taxed PTE will no longer include income attributable to other states in the calculation of the tax due for its North Carolina resident owners. There will be two deductions available to Taxed PTE Owners: (1) A deduction for the North Carolina income taxed at the PTE level, and (2) a deduction for income taxed by another state at the PTE level (in lieu of a tax credit).
Legislative leaders understand the urgency involved with these retroactive changes, and we have stressed the importance of swift passage.