California is one step closer to joining the growing number of states adopting pass-through entity (PTE) tax legislation in response to the 2017 federal tax reform legislation. For federal income tax purposes, the 2017 tax reform limited individuals’ itemized deduction to $10,000 for their separately stated state and local income, sales, and property taxes (SALT).
On July 1, Assembly Bill 150 (A.B. 150), one of the two budget trailer bills that contained California’s iteration of the elective PTE tax language, was passed by the Senate 40-0 and by the Assembly 78-0 and has been presented to Governor Gavin Newsom (D) for final action.
Action item: While A.B. 150 seeks to make taxpayers whole by putting them in the same position in which they had been prior to the passage of the federal limitation, certain facets of the legislation will require qualifying partners/members/shareholders (collectively referred to as “partners”) to evaluate whether such an election would be beneficial or even whether the PTE is eligible to make an election on their behalf.
