Pass-Through Entity Tax State Election Dates

By Chris Johnson, Lisa Haime, John Bonk and Geoff Christian

Tax filing season is now well underway, and presumably, you may be filing a pass-through entity tax (PTET) election for your partnership, subchapter S corporation or limited liability company. This permits the benefit of a state tax deduction against the entity’s business income and ultimately reduces the owners’ personal federal income tax liability, which would otherwise be subject to the $10,000 SALT cap.

A formal election must be made to take advantage of this deduction in every state. While many states allow you to simply make the election on a timely filed (or extended) state tax return, there are also states such as New York that require you to make the election separately from the tax return filing and by a certain date. Most states that require the election to be made separately from the return filing also require that the election be made online and with differing and potentially short windows for filing.

All of these deadlines are strictly enforced. If the entity misses the relevant election deadline, the owners will receive no benefit from the state and local taxes paid by the entity. Below is a state-by-state listing of these deadlines; be sure to check and adhere to them for every state in which your pass-through entity clients file returns. Any states not listed either do not have a personal income tax or do not have a pass-through entity tax that can be deducted for federal tax purposes and credited on personal tax returns.

• Alabama: Election must be made separately from the tax return filing and online, on or before the due date of the return including extensions.
• Arizona: Election is made on a tax return that is timely filed including extensions; however, all partners and shareholders of the entity must be notified at least 60 days prior to filing that an election is being made and be given the right to opt out of the election. Partners or shareholders that do not respond to the notification will be automatically included in the election.
• Arkansas: Election is made before the due date including extensions either: 1) on the tax return, 2) filing a Form AR362-E, or 3) online by the members holding more than 50% of the voting power of the entity.
• California: Election is made on a timely filed tax return including extensions, and at least 50% of the prior year’s PTE tax or $ 1000 (whichever is greater) must be paid on or before June 15 during the taxable year of the election.
• Colorado: Election is made before the due date, NOT including extensions (no indication an election can be made on a tax return filed by extension) either: 1) on the tax return, 2) on Form DR 1705, SALT Parity Act Election Form, or 3) on Form DR 106EP, Estimated Tax Payment Form.
• Connecticut: Election is made on a timely filed Form CT-1065/CT-1120SI Connecticut Composite Income tax return, including extensions. Must file both the Form CT-1065/CT-1120SI and new Form CT-PET.
• Georgia: Election is made on a timely filed tax return including extensions.
• Hawaii: Election is made on a timely filed tax return including extensions with Form N-362E, and Schedule PTE and must be signed by all members or one authorized member.
• Idaho: Election is made on a timely filed tax return, NOT including extensions. Include a Form ABE with the return if the person signing the return is not authorized to make the election.
• Illinois: Election is made on a timely filed tax return including extensions.
• Indiana: Election is made on a Form IN-PTET prior to the return due date including extensions, or on a timely filed tax return including extensions. Must be made by an authorized person.
• Iowa: Election is made on a timely filed tax return including extensions or separately using the pass-through entity’s online account on GovConnectIowa prior to filing the tax return.
• Kansas: Election is made on a timely filed tax return including extensions.
• Kentucky: Election is made on either a Form 740-PTET-ELECT during the tax year or prior to the extended tax return deadline, or on a timely filed tax return including extensions.
• Louisiana: Election must be made separate from the tax return filing on a Form R-6980, either prior to or during the tax year or by the due date of the tax return, NOT including extensions (elections can be made after the regular return deadline if the taxpayer can show reasonable cause for the late election). Shareholders, members or partners holding more than one-half of the ownership interest in the entity based upon capital account balances on the day the election is made must approve the election.
• Maryland: Election is made either with the first estimated payment on Form 510/511D, or if the Form 510/511D is not filed, on a timely filed tax return without extension, or on an extension request, Form 510/511E. The election must be made on whichever form is filed first.
• Massachusetts: Election is made separately on an online Form 63D-ELT before the due date of the filed tax return, including extensions, and also checking the appropriate box on a timely filed Excise Tax return, including extensions.
• Michigan: Election is made by making a payment with the state Department of Treasury online by the 15^th day of the third month of the pass-through entity’s tax year and is valid for three tax years and cannot be revoked.
• Minnesota: Election is made on a timely filed tax return including extensions by owners holding at least 50% ownership interest.
• Mississippi: Election is made separately by filing Form 83-381 at any time during the tax year, or the due date of the tax return or by the date the return is filed. The election must be made by ownership holding at least 50% voting control of the entity; once filed, it remains in effect for all subsequent tax years until revoked.
• Missouri: Election is made on a timely filed, including extensions, Form MO-PTE, which has the same due date as and is filed in addition to a MO-1065 for partnerships or MO-1120S for S corporations.
• Montana: Election is made on a timely filed tax return including extensions.
• Nebraska: Election is made on a timely filed tax return including extensions.
• New Jersey: Election is made separately on an electronic Form PTE-100 by the 15^th day of the third month following the close of the tax year.
• New Mexico: Election is made on a timely filed tax return including extensions.
• New York State and New York City: Election is made separately and online between January 1 and March 15 of the current tax year (i.e., an entity wishing to elect for 2025 must elect no later than March 15, 2025).A separate election is required for state and city.
• North Carolina: Election is made on a timely filed tax return including extensions.
• Ohio: Election is made separately on Form IT-4738, no later than April 15 after the year in which the entity’s fiscal year ends, or by the extended tax filing deadline as provided by the IRS, if the federal extended due date is beyond the un-extended due date for the Ohio return.
• Oklahoma: Election can be made on a Form 586 either during the preceding tax year or up until the 15^th day of the third month after the beginning of the tax year, or on a timely filed tax return including extensions.
• Oregon: Election is made on a timely filed tax return including extensions.
• Rhode Island: Election is made on a timely filed tax return including extensions with a Schedule PTE, or when estimated pass-through entity tax payments are made.
• South Carolina: Election is made on a timely filed tax return including extensions.
• Utah: Election is made by filing an online SALT report on the TAP website and submitting an estimated payment before the end of the entity’s taxable year.
• Virginia: Election is made on a timely filed tax return including extensions or making estimated or extension payments of the tax for the taxable year.
• West Virginia: Election is made on a timely filed tax return including extensions.
• Wisconsin: Election is made on a timely filed tax return including extensions.

Please note that Colorado, Idaho and Louisiana are states where you must make the election on the timely filed tax return, and there is no indication in the law that the election can be made on an extended tax return.

Only five states with a personal income tax on pass-through income have not adopted a PTET. They are Delaware, Maine, North Dakota, Pennsylvania and Vermont.

Thirty-six states and New York City have a pass-through entity tax that is designed to allow individual partners and shareholders of these entities to save on their individual federal taxes that would otherwise be limited by the $10,000 SALT cap on itemized deductions. While electing to pay this tax may be as simple as ticking off an extra box on a timely filed tax return (under extension or otherwise), other states require an extra form attached to the return, some have an entirely separate filing, and still others allow for a very limited window to make the election — usually before the return itself is prepared.

It should also be noted that most of these state taxes are specifically set to expire or will become obsolete after 2025 when the Federal Tax Cuts and Jobs Act expires. Unless the federal law is extended, 2025 will likely be the final year pass-through entity tax elections will be relevant in any state.

Please contact the authors of this article regarding PTET, especially if you are potentially filing in new states for 2024, to make sure deadlines are being met.