State Pass-Through Entity Tax Updates: October 2023
On September 29, 2023, the Iowa Department of Revenue announced that the 2022 Pass-Through Entity (PTE) Tax election and 2022 PTE Tax Form are available through GovConnectIowa. The Iowa Department of Revenue will not be issuing paper forms or modifying any existing 2022 income forms or schedules. Eligible partnerships and S-Corporations may now make their 2022 Iowa PTE Tax election to compute and report the PTE Tax credit available to each owner and make payments of the PTE tax due.
For tax year 2022, the Iowa PTE Tax election must be made after January 2, 2024, or the due date for filing the taxpayer’s 2022 IA 1065 or 2022 IA 1120S return, including extensions. The Iowa Department of Revenue strongly recommends that a pass-through entity logs into the GovConnectIowa account to complete its 2022 PTE Tax form.
On October 3, 2023, House Bill 259 (Session Law 2023-134), North Carolina’s 2023 budget bill, was enacted. Among the provisions in this legislation, there is an amendment to the state’s PTE Tax law retroactive to tax years beginning on or after January 1, 2022. This change will allow partnerships with C-Corporation or trust partners that were ineligible to make the election on their timely filed return under prior law to make the PTE Tax election for the 2022 tax year by filing an amended return to reflect the election on or before October 15, 2023.
The North Carolina Department of Revenue (NC DOR) issued Directive TA-23-1 on October 4, 2023, regarding the legislation that provides details on certain trusts and corporations that may now be eligible in an electing partnership. Additional detail is provided on the timing and manner of making the election for the 2022 tax year. The directive specifies that “A Taxed Partnership Election made on an amended return for tax year 2022 filed after October 15, 2023, is not valid.”
Generally, taxpayers would be allowed to file on the next proceeding weekday, which is October 16, 2023. The NC DOR even states this on their home page. The language of House Bill 259 specifically says the due date to file an amended return to make the election is on or before October 15. The emphasis placed on the October 15 due date in the DOR’s directive indicates that the Department will strictly adhere to the language of the legislation and will not provide the same proceeding weekday exception to electing partnership amended 2022 returns.
On October 3, 2023, the Virginia Department of Taxation published Tax Bulletin 23-8, Important Information Regarding Virginia’s PTE Tax Filing Deadline for Certain Taxable Year 2022 Returns. The Virginia Department of Taxation announced in this Tax Bulletin that because certain software vendors are not currently supporting electronic filing of the electing pass-through entity return, Form 502PTET, which is required to be electronically filed, they will offer a free online filing option and an extended due date to file via this option until February 1, 2024. The online filing option is currently still in development and will not be available until December 2023.
As a result, many electing PTEs that have paid their PTE Tax liability in full by the original due date, but do not have the option to file with tax software that supports electronic filing of Form 502PTET, will not be able to file a return by the extended due date and would be subject to a minimum $100 late filing penalty, which would apply even if no tax is due with the return. Therefore, the Virginia Department of Taxation will not impose the minimum $100 late filing penalty for tax year 2022, provided that the electing PTE:
- Paid the full amount of PTE Tax owed on or before their original due date of April 17, 2023, for calendar year filers
- Files its PTE Tax return using the Virginia Department of Taxation’s free online filing option on or before February 1, 2024