North Carolina Extends PTET Election Due Date and Clarifies Franchise Tax Base Cap Computation

calendar iconMay 28, 2024

Contributors: Tony Konkol, Manager, State & Local Tax

North Carolina Senate Bill No. 508 (Session Law 2024-1) was signed into law on May 15, 2024 and provides an extended July 1, 2024 due date for partnerships to make a tax year 2022 pass-through entity tax (PTET) election.

House Bill No. 259 (Session Law 2023-134) was enacted on October 3, 2023, expanding eligibility for North Carolina’s PTET election. Partnerships with corporations or certain trust partners, previously ineligible, may now make the election for the 2022 tax year if filed by October 15, 2023. The timing of this legislation provided little time for newly eligible partnerships to take advantage of the PTET election for the 2022 tax year before the October 15, 2024, deadline. The recent passage of S.B. 508 has provided a measure of relief, allowing a partnership the opportunity to make the 2022 PTET election by filing an amended return reflecting the election on or before July 1, 2024.

Additionally, S.B. 508 clarifies the computation of the upcoming C-Corporation 2025 franchise tax base cap. Starting January 1, 2025, the franchise tax for C-Corporations will be $1.50 per $1,000 of its tax base. However, the maximum for the first $1,000,000 of a corporation’s tax base is $500. This will be reported on tax year 2024 and later corporate income tax returns.

North Carolina Department of Revenue (DOR) Updates PTET Election Guidance for Eligible Trust and Corporation Partners

On May 16, 2024, the North Carolina DOR published revisions to Tax Administration Directive TA-23-1, originally issued October 4, 2023. Directive TA-23-1 remains unchanged regarding guidance on eligible trusts and corporations that may now be eligible partners in an electing partnership for the 2022 tax year. However, the directive has been updated to reflect the updated due date for eligible partnerships to make the tax year 2022 PTET election until July 1, 2024, as a result of the recent passage of Senate Bill No. 508.

Your Guide Forward

Reach out to a Cherry Bekaert State and Local Tax Services team member to learn more about how the recent North Carolina law changes could impact your business.

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