Normally, when a taxpayer amends a tax return, it is to correct an error or omission. Every once in a while, though, a new opportunity may arise to claim a benefit that was not available at the time of filing. This can be the result of a court decision applicable to open tax years or retroactive legislation. Several states have recently enacted the latter.
Tennessee
Tennessee recently enacted a bill (HB 1893/SB 2103) that will significantly change the franchise tax computation for future years and provide refund opportunities for some prior years. This legislation was introduced in January.
Under existing law, the franchise tax is imposed on the greater of apportioned net worth (the “net worth base”) or the actual value of the taxpayer’s aggregate real and tangible personal property located in Tennessee (the “minimum measure base” of tax).
For tax years ending in 2024 and thereafter, the bill eliminates the minimum measure base.
For tax years ending on or after March 31, 2020, for which a return was filed on or after January 1, 2021, the bill allows a taxpayer to amend its return to remove the minimum measure base from the franchise tax computation and request a refund of the resulting overpayment; the net worth base is not affected. Taxpayers have until November 30, 2024, to amend these returns and request refunds.
Retroactive PTET Elections
While retroactive legislation like this is certainly not the norm, it is not unheard of. In fact, there are several states that are currently in a window of time during which a pass-through entity (PTE) can make a retroactive election to pay tax at the entity level in order to take advantage of the resulting federal income tax deduction. An individual PTE owner is subject to the $10,000 limit on itemized state and local tax deductions (i.e., the SALT cap), but these elections allow an unlimited SALT deduction to flow to an owner through the business’ tax return (which is not bound by the SALT cap). Colorado (2018-2021 tax years), Nebraska (2018-2022), and Virginia (2021) are each open for taxpayers to make these retroactive elections for a limited time. These elections may not be appropriate for all pass-through entities due to a number of factors, but for many PTE owners, the federal tax savings could be beneficial.
To learn more, contact a member of GBQ’s SALT team.
