Since Connecticut enacted the first Pass Through Entity (PTE) tax in April 2018, more States have enacted or proposed this tax tool. It was around 14 in June 2021, around 30 in January 2023 and at the date of this article is 36 States and one localty (NYC) according to the AICPA listing (link below).
Overall, the PTE allows the business to pay taxes on behalf of the members (llc or partnerships) or shareholders (S Corp), which is consider a business expenses at the Federal level (this is a deduction like any other expense). This tool has been available after the 2017 Tax Cuts and Jobs Act’s that created a limitation on the State and Local tax (SALT) deduction of $10,000 even if expected to expire in 2025. This limitation on the SALT deduction impacted States with income taxes and relatively high property taxes, such as California, New Jersey, New York, etc.
If you are a business owner in one of the States where PTE is available, you should consult with your tax professional to run tax projections, consider modifying the entity structure, etc. so you can take advantage of this program.
Link AICPA map of States with PTE (as of July 20, 2023) – https://us.aicpa.org/content/dam/aicpa/advocacy/tax/downloadabledocuments/56175896-pte-map.pdf
