Montana Senate Bill 554 (SB 554) was sent to the governor for signature on May 11, 2023 and is expected to be signed into law soon, making Montana the latest state to enact legislation that will allow for pass-through entities (PTEs) to make an election to be taxed at the entity level.
Items of note from this bill include:
- An electing PTE includes any partnership or S corporation that elects to be subject to the entity tax.
- The PTE tax rate will be the highest marginal tax rate in effect for the tax year the election is made.
- The entity tax will be paid in lieu of composite and withholding tax.
- Quarterly estimated payments are required.
- Nonresident owners are not required to file Montana income tax returns so long as their only income earned from the state is subject to the entity tax.
- The election is to be made annually by the return due date, including extensions, and is irrevocable once made.
- The PTE must designate a PTE representative who will be authorized to make the election and act on behalf of the entity throughout the year of election.
- Owners that are not PTEs may claim their distributive share of the entity’s PTE tax as a refundable credit.
- Owners that are electing PTEs may claim their distributive share of entity tax as a refundable credit against composite and withholding taxes.
- Resident owners are allowed a credit for taxes paid to other states.
- The law will have an effective date of January 1, 2024 but can be applied retroactively for tax years beginning after December 31, 2022.
- There is not yet guidance as to the manner in which the election is to be made.
FORVIS will continue to monitor this pending legislation. If you have any questions or need assistance, please reach out to a professional at FORVIS or submit the Contact Us form below.