Readers may recall that the Alabama legislature unanimously passed a pass-through entity tax (PTE tax) last year as a workaround to the so-called “SALT cap,” which was part of the Tax Cuts and Jobs Act of 2017. The SALT cap limits state and local tax deductibility to $10,000 (MFJ) per year.
Alabama’s PTE tax became effective retroactively to January 1, 2021, and the Alabama Department of Revenue (ADOR) promulgated an administrative rule in February 2022 that sets out the procedures for electing the PTE tax. Like us Previously reportedthe draft and final versions of the rule required taxpayers to elect the PTE tax electronically through the ADOR My taxes in Alabama (MAT) “no later than the fifteenth day of the third month following the end of the taxation year for which the entity elects to be taxed as an electoral transfer entity”. According to the rule,[i]If the election form is not filed on Form PTE-E via MAT in a timely manner, the election to become an Electoral Transfer Entity will be denied. »
Unfortunately, a significant number of taxpayers ignored this requirement and failed to make a timely election on MAT when filing their PTE 2021 tax returns earlier this year, mistakenly assuming it was all that was needed to make the election.
Recognizing that this oversight occurred in the first year of existence of the PTE tax and the number of missed elections, ADOR announcement that it reopens the e-filing window on July 1. Taxpayers will now be able to make the PTE Tax Election online for the 2021 tax year between July 1 and August 15, 2022. Calendar year taxpayers would normally have had to make the election before March 15, 2022.
According to the announcement, electing the late-filed PTE tax is conditional on the PTE having:
This development comes as a huge relief to the significant number of taxpayers who were unaware that a separate election had to be made through the MAT. We commend the ADOR Commissariat for the speed with which they resolved this issue.
© 2022 Bradley Arant Boult Cummings LLPNational Law Review, Volume XII, Number 175