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Massachusetts Elective PTE Tax for Pass Through Entities

Terranova & Associates, LLC strives to keep our clients up to date regarding tax changes that will impact them. On July 21, 2021, Governor Charlie Baker filed H.B. 4008 that was introduced to the House of Representatives on July 22, 2021, and H.B. 4009 amendments rejected by the Massachusetts House of Representatives on July 28, 2021, and Massachusetts Senate on July 29, 2021. These Bills where updated to become H.B. 4049 and 4050 that was vetoed by Governor baker but on October 12, 2021, Legislature Overrides Governor Baker’s veto of Pass-Through Entity Tax.

The October 12, 2021, Bill is as follows:

· Allow eligible pass-through entities to pay an elective tax;

· Repeals Corporate Excise Tax and Personal Income Tax Credits for federal medical device user fees;

· Ends the corporate excise tax credit for the federal harbor maintenance tax; and

· Eliminates an unused deduction for income from energy conservation or alternative patents.

Eligible elective Pass-Through Entities are:

· S Corporations;

· Partnerships; and

· Limited Liability Companies.

· The Bill would also direct the MA Department of Revenue to establish rules for application of the elective tax to Estates and trusts.

Election of Pass-Through Entity tax:

· Eligible Pass-Through Entity would make the election annually. This election would bind the owners of the entity for the year of elections. Once the Pass-Through Entity made the annual election it can not change it for that year.

The Tax rate:

· 5%

The effective dates:

· For the tax years beginning on or after January 1, 2021. This tax is applicable until:

o Repeal of the federal limitation on State and Local Tax Deduction (IRC Sec. 164(b)(6) and known as federal SALT deduction; or

o Federal limitation expires or is no longer in effect

Credit for Owners:

· LLC members, Partners, and S-Corporation shareholders would claim a refundable credit for the tax paid by the Pass-Through Entity equal to the owners proportionate share of 90% of the tax paid.

Due dates of Tax Returns and Tax Payments:

· Three months and fifteen days after the Entities fiscal year end; or

· March 15thfor calendar year Entities.

You can find more information about this new Legislation in the FAQs on DOR’s website when it becomes available. The DOR Newsletter on October 19, 2021, said to “keep an eye out for the new return that’s currently being developed and some FAQ’s.” If you have any other questions or concerns, please contact DOR at (617) 887-6367 or online through your MassTaxConnect account.

As additional information becomes available, we will provide additional updates.

Our current position regarding this topic is to analyze each Entity’s MA tax and Individual Owner’s tax to determine the most tax effective manner to best utilize the new Pass-Through Entity Tax.

We are available for consultations regarding this and other tax matters if you need assistance, please contact us. We are excited to welcome the new clients that have retained our services!

This is our update as of this time and we will strive to keep you informed; please keep in mind this is a fluid topic and subject to change at any time.

This information should be used to strategically navigate through the months ahead. We are in the office and are happy to assist you.

Please feel free to share this with your relatives and friends and remember we are here to help our clients during this difficult time

Terranova & Associates, LLC.

Thomas D. Terranova, Jr., CPA, PFS, CITP

150A Andover Street, Ste 11C

Danvers, MA 01923

Tel: (978) 774-7700 X 104, Fax: (978) 774-7705


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