Several states have enacted pass-through entity taxes in response to the $10,000 SALT deduction cap under the Tax Cuts and Jobs Act. New York, New Jersey, Maryland, Rhode Island, Connecticut, and California allow pass-through entities like partnerships and S corporations to elect to pay a tax on state-source income, with owners then receiving a credit. Key considerations for these taxes include tax rates, estimated payment requirements, utilization of credits, and impacts on tiered structures.

1. July 29, 2021
The New Rage in SALT:
State Pass-Through
Entity Taxes

2. Welcome
2
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3. Our Presenters
Partner
State and Local Tax
White Plains
Eugene Ruvere, CPA, MST
Principal
State and Local Tax
Philadelphia
Jamie Reichardt, JD LLM

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B ackground
N ew York
R hode Island
C onnect icut
C alif ornia
Other States/Recent
A dopt ions
N ew J e rs e y
Maryland
Agenda

5. Polling Question #1
How familiar are you with the current updates on state pass-
through entity taxes?
a. Very familiar
b. Somewhat familiar
c. Not at all familiar
d. What is a state pass-through entity tax?
5

6. into
Background
• Tax Cuts & Jobs Act - $10,000 SALT deduction cap.
• Cap applies to individual taxpayers, but not business entities paying entity-level taxes.
• Significant tax ramifications for pass-through entity owners in high income tax states.
• Pass-Through Entity Tax Work-Around
• More than a dozen states have enacted (and counting).
• Mandatory vs. elective considerations.
• IRS Notice 2020-75
• Gave state pass-through entity taxes IRS approval.
• Approval regardless of deduction or credit mechanism that may be available to partners,
members and shareholders.
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7. into
Background ‘continued’
• Ramifications for cash vs. accrual taxpayers – requirement for tax payments made during
the tax year
• Financial statement implications
• Common Issues
o Utilization of tax credits
o Composite returns
o Non-resident withholding
o Credit for tax paid
o Add-back
o Credit to be taken on a composite return
o Allocations when dealing with pass-through entity owners who may be exempt
o Investment partnerships and management entities
o Tiered structures
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8. into
New York
• Elective Pass-Through Entity Tax (“PTET”)
o The PTET applies to tax years beginning on or after 1/1/21.
o PTEs must make the irrevocable election to be subject to the PTET annually
by the 1st quarterly due date of the tax year (generally March 15th).
o The 2021 election is due October 15, 2021.
o The election is irrevocable once filed.
o Electing PTEs may apply for an extension of up to six months to file.
o Once a PTET return has been filed, it cannot be amended without
authorization.
o An electing pass-through entity becomes liable for payment of the PTET
upon making the election.
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9. into
New York ‘continued’
• Elective Pass-Through Entity Tax (“PTET”)
o Quarterly estimated payments of 25% of the required annual payment due by March 15, June
15, September 15, and December 15 in the calendar year prior to the due date of the annual
return.
o The annual payment of estimated tax required to avoid penalties and interest is the lesser of:
90% of the PTET shown on the entity’s return for the taxable year; or 100% of the PTET
shown on the entity’s return for the preceding taxable year.
o For tax year 2021, individual members, partners or shareholders should continue making
estimated income tax payments at the individual level.
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10. into
New York ‘continued’
• Elective Pass-Through Entity Tax (“PTET”)
o Differing tax base computations for partnerships and LLCs versus S corporations.
o Based on income subject to personal income tax so no tiered entities in computation.
o PTET base of an electing partnership/LLC equals:
• The sum of the partnership’s NYS source income +
• The partnership’s un-apportioned worldwide income to the extent included in the
taxable income of its resident partners.
• Partnerships/LLCs use a 3-factor evenly-weighted formula with charges for services being
sourced to NYS when performed by or through an office of the business located within
NYS.
o S Corporations – tax base is equal to NYS-source income.
o Single factor with market sourcing.
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11. into
New York ‘continued’
• Elective Pass-Through Entity Tax (“PTET”)
o PTE owners are entitled to a refundable tax credit in the amount of PTET paid by an electing
entity on their share of taxable income.
o NYS residents entitled to a credit for tax paid for their share of any pass-through entity tax
substantially similar to NYS.
o NYS taxpayers should add back the amount of the above-referenced PTET credits to NYS
taxable income.
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12. into
Elective Pass-Through Entity Tax (“PTET”)
New York ‘continued’
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PTE Taxable Income up to $2m 6.85%
PTE Taxable Income over $2m, but under $5m 9.65%
PTE Taxable Income over $5m, but not over $25m 10.30%
PTE Taxable Income over $25m 10.90%

13. New York PTE Tax Calculation
Example (1)
Partnership – New York
Resident Individual
Partner
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New York PTE Tax Calculation Examples
For Discussion Purposes Only
37% Federal Effective Rate NY Resident
Partnership - All Operations in New York 40% Interest in PTE
Federal Income Tax
Taxable Income before PTE Deduction (PTE-Level) 15,000,000
PTE Deduction (PTE-Level) 1,456,500
Taxable Income (PTE-Level) 13,543,500
Distributive Share (PTE Owner-Level) 5,417,400
Other Income (PTE Owner-Level) 500,000
Federal Taxable Income (PTE Owner-Level) 5,917,400
Federal Income Tax Due (PTE Owner-Level) 2,189,438
Net Federal Savings to PTE-Owner 215,562
New York Income Tax - PTE Owner
Federal Taxable Income 5,917,400
New York Modifications 750,000
PTE Tax Add-Back 582,600
New York Taxable Income 7,250,000
New York Tax 651,164
PTE Credit 582,600
Resident Credit -
Remaining NY Tax Due 68,564

14. New York PTE Tax Calculation
Example (2)
Partnership – Virginia
Resident Individual
Partner
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New York PTE Tax Calculation Examples
For Discussion Purposes Only
37% Federal Effective Rate VA Resident
Partnership - All Operations in New York 40% Interest in PTE
Federal Income Tax
Taxable Income before PTE Deduction (PTE-Level) 15,000,000
PTE Deduction (PTE-Level) 1,456,500
Taxable Income (PTE-Level) 13,543,500
Distributive Share (PTE Owner-Level) 5,417,400
Intangible Income (stocks, bonds, etc.) 500,000
Federal Taxable Income (PTE Owner-Level) 5,917,400
Federal Income Tax Due (PTE Owner-Level) 2,189,438
Federal Savings to PTE-Owner 215,562
Net Savings Taking Into Account Resident Credit Risk (139,064)
New York Income Tax - PTE Owner
Federal Taxable Income 5,417,400
State Modifications 750,000
PTE Tax Add-Back 582,600
New York Taxable Income 6,750,000
New York Tax 599,664
PTE Credit 582,600
Resident Credit -
Remaining NY Tax Due 17,064
Foregone VA Resident Credit 354,626

15. New York PTE Tax Calculation
Example (3)
S Corporation – New York
Resident Shareholder
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New York PTE Tax Calculation Examples
For Discussion Purposes Only
37% Federal Effective Rate NY Resident
S Corporation - All Operations in New York, but 40% Interest in PTE
only 50% Receipts Factor for Apportionment
Federal Income Tax
Taxable Income before PTE Deduction (PTE-Level) 15,000,000
PTE Deduction (PTE-Level) 684,000
Taxable Income (PTE-Level) 14,316,000
Net Pro Rata Share (PTE Owner-Level) 5,726,400
Intangible Income (stocks, bonds, etc.) 500,000
Federal Taxable Income (PTE Owner-Level) 6,226,400
Federal Income Tax Due (PTE Owner-Level) 2,303,768
Net Federal Savings to PTE-Owner 101,232
New York Income Tax - PTE Owner
Federal Taxable Income 5,726,400
State Modifications 750,000
PTE Tax Add-Back 273,600
New York Taxable Income 6,750,000
New York Tax 599,664
PTE Credit 273,600
Resident Credit -
Remaining NY Tax Due 326,064

16. New York PTE Tax Calculation
Example (4)
S Corporation – Virginia
Resident Shareholder
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New York PTE Tax Calculation Examples
For Discussion Purposes Only
37% Federal Effective Rate VA Resident
S Corporation - All Operations in New York, but 40% Interest in PTE
only 50% Receipts Factor for Apportionment
Federal Income Tax
Taxable Income before PTE Deduction (PTE-Level) 15,000,000
PTE Deduction (PTE-Level) 684,000
Taxable Income (PTE-Level) 14,316,000
Net Pro Rata Share (PTE Owner-Level) 5,726,400
Intangible Income (stocks, bonds, etc.) 500,000
Federal Taxable Income (PTE Owner-Level) 6,226,400
Federal Income Tax Due (PTE Owner-Level) 2,303,768
Federal Savings to PTE-Owner 101,232
Net Savings Taking Into Account Resident Credit Risk (71,268)
New York Income Tax - PTE Owner
Federal Taxable Income 5,726,400
State Modifications 750,000
PTE Tax Add-Back 273,600
New York Taxable Income 6,750,000
New York Tax 599,664
PTE Credit 273,600
Resident Credit -
Remaining NY Tax Due 326,064
Foregone VA Resident Credit 172,500

17. Polling Question 2
Of the NBA teams which played in the conference finals, which
play for states that have enacted pass-through entity taxes?
a. All of them
b. Los Angeles Clippers
c. Atlanta Hawks
d. Milwaukee Bucks
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18. into
New Jersey
• Pass-Through Business Alternative Income Tax took effect
in 2020.
• Pass-through entities may elect to pay an entity-level tax
on New Jersey-source income.
• Return due date of 3/15 or 15th day of third month after
year-end; also deadline for making PBAIT election.
• Owners of PTEs receive refundable income tax credits for
tax paid by entity based on income allocation (not
refundable for CBT taxpayers).
• Tiered partnership claims credit for tax paid on its behalf
on NJ CBT-1065.
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19. • Tax imposed on NJ-source income—using schedule NJ-NR-A; 3-factor; evenly-
weighted apportionment formula with services sourced based on where performed.
• The tax base may include: net income, dividends, royalties, interest, rents,
guaranteed payments, and gains of a PTE, provided NJ-source.
• Legislation calls for consolidated/combined option for PTEs which are commonly-
owned.
• Refundable credit from the tax passed through to an estate or trust may be used by
the estate/trust or allocated to beneficiaries.
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New Jersey ‘continued’

20. New Jersey ‘continued’
• Estimated tax payments: 4/15, 6/15, 9/15, 1/15.
• No penalties for 2020 due to lack of forms/guidance.
• Nonresident withholding still applicable even if election made: cash flow issue.
• Credit for PBAIT paid should be available on composite return.
• If election made, tax must be paid on behalf of all members, even those which
are tax-exempt.
• Potential issue with Pennsylvania resident credit.
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21. into
New Jersey ‘continued’
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Sum of Each Members Share of Distributive Proceeds Tax Rate
First $250,000 5.675%
Amount of $250,00 but not over $1 million ($14,187.50 plus
6.52% of excess over $250,000)
6.52%
Amount over $1 million but no over $5 million ($63,087.50
plus 9.12% of excess over $1 million)
9.12%
Amount over $5 million ($427,887.50 plus 10.9% of the
excess over $5 million)
10.9%

22. Maryland
• Elective tax added to nonresident withholding statute for
tax year 2020.
• 8% (8.25% for entities) rate imposed on MD-source
income.
• Tax credit available on individual owner’s return for tax
computed on owner’s share of income.
• Tax paid on behalf of a nonresident owner that is also a PTE
is allocated to the upper tier partners of the nonresident
PTE.
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23. Maryland ‘continued’
• Tax does not apply with respect to income of REITs and IRC 501 tax-exempt
entities.
• Tax does apply with respect to income allocated to all members, except those
exempt members/owners above.
• Election on Form 511 with estimated payments on Form 510D – 4/15, 6/15, 9/15,
12/15 (S corps) or 1/15 (partnerships).
• Recent legislative fix.
• Administrative Release 6.
• No composite option if election is made.
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24. Polling Question #3
Which states impose a personal income tax based on modified adjusted gross
income or taxable income for federal income tax purposes?
a. Tennessee
b. New Hampshire
c. Pennsylvania
d. None of the above
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25. into
Rhode Island
• Elective tax put in place for tax years starting 1/1/2019.
• 5.99% imposed on RI-source net income (inclusive of
guaranteed payments).
• Annual election made with the filing of the PTE tax return.
• Tax credit available on individual owner’s RI return for tax
computed on owner’s share of income.
• Lack of clarity on ability to use credit on RI composite
return.
• Nonresident withholding can be discontinued if the RI PTE
tax election is made.
• Estimated payments due 4/15, 6/15, 9/15, 12/15.
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26. into
Connecticut
• Mandatory tax imposed since tax year 2018.
• 6.99% entity-level tax.
• Two potential methods for computing tax base:
o CT-source income; or
o CT-source income + resident portion of unsourced income.
• Tax credit available on individual owner’s return for 87.5% of
tax computed on owner’s share of income.
• In tiered partnership context, subtraction of previously taxed
income at lower tier level.
• Commonly-owned (80%) pass-through entities can elect to
file a combined PE tax return.
• Estimated payments: 4/15, 6/15, 9/15, 1/15.
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27. into
California
• Elective tax for tax years 2021-2025 or until the SALT deduction
returns uncapped at the individual level.
• 9.3% tax on CA-source income for nonresidents and all income
regardless of source for residents.
• CA uses a single sales factor with market sourcing.
• Tax credit available to owners/partners for PTE tax paid with 4-
year carry-forward; non-refundable.
• Election shall be made on a timely filed tax return, including
extension.
o No election available for an entity with partnership or multi-member LLC
owners/partners etc.
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28. into
California ‘continued’
• For 2021 tax year, tax to be paid by original due date.
• For subsequent years, the PTE shall remit either 50% of the elective tax paid
during the prior taxable year, or $1,000, whichever is greater.
• The remaining balance of the tax due shall be due on or before the original due
date, without regard to any extensions.
• Failure to make the first payment due on June 15th will disqualify the pass-
through entity from the elective tax for the taxable year.
• Questions surrounding utilization of credit on composite filing and nonresident
withholding.
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29. • Arizona
• Georgia
• Massachusetts – uncertain future
• Veto in Michigan
• With additional states to follow
depending on what happens in DC
Other States/
Recent Adoptions
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30. Considerations & Opportunities
• Opportunity seems to be ripe for a resident partner/shareholder/member of an
entity with significant apportionment in the state (aside from CA and NY maybe)
• Partners/members in no income tax states like FL, TN, TX, etc.
• Weigh costs of potential added compliance and no composite – like MD
• Federal tax benefit vs. cost of not getting a resident credit
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If you are working with any pass-through entity with any significant amount of
apportionment and income in a pass-through entity tax state, it is worth
discussing with your Citrin Cooperman tax advisor or feel free to contact:
Eugene Ruvere – 914.929.2990 x3375, eruvere@citrincooperman.com
or
Jaime Reichardt – 215.545.4800 x4520, jreichardt@citrincooperman.com

31. Questions?
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32. Thank You
For Participating!