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The 2017 Tax Cuts and Jobs Act limited the state and local tax (SALT) deduction to $10,000. In response to this SALT cap, Oregon has created the Oregon Pass-Through Entity – Elective Tax (PTE-E), generally referred to as a business alternative income tax (BAIT).
Entities taxed as S-corporations and partnerships may elect annually to be subject to the Oregon PTE-E for tax years beginning on or after January 1, 2022. To qualify for this election, all members/owners of the pass-through entity must be individuals, grantor trusts, or pass-through entities that are owned entirely by individuals subject to personal income tax.
By making this election, the first $250,000 of distributive proceeds is taxed at 9%, and any amount exceeding $250,000 is tax at 9.9%.
The passthrough entity would make the election to pay the Oregon PTE-E tax, and the member/owner(s) may then claim a tax credit for the tax paid by the pass-through entity on their share of distributive proceeds. This would allow for the pass-through entity to deduct state income taxes as a business expense.
It is currently unclear which states will allow for a state tax deduction or provide a state tax credit for PTE-E/BAIT paid at the entity level. For multistate taxpayers, the decision to participate should be made on a case-by-case basis.
If you would like to make the election, you will be required to register on Revenue Online before estimated payments can be made. Registration will open June 6, 2022. For the 2022 tax year, the first required estimated tax payment is due June 15, 2022. The first quarter estimate was not required, therefore the estimated payment due on June 15, 2022, should include the first and second quarters of 2022.
If you have any questions, please reach out to your Delap advisor for a more in-depth discussion about your unique situation.