August 9, 2022

Volume XII, Number 221

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August 08, 2022

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ADOR Grants Extension to Make PTE Tax Election for 2021 Tax Year

Readers may recall that the Alabama Legislature unanimously enacted an elective 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 the deductibility of state and local taxes to $10,000 (MFJ) annually.

Alabama’s PTE Tax was retroactively effective to January 1, 2021, and the Alabama Department of Revenue (ADOR) promulgated an administrative rule in February 2022 that set forth the procedures for making the PTE Tax election. As we previously reported, both the preliminary and final version of the rule required taxpayers to make the PTE Tax election electronically via the ADOR’s My Alabama Taxes (MAT) website “on or before the fifteenth day of the third month following the close of the tax year for which the entity elects to be taxed as an Electing Pass-Through Entity.” According to the rule, “[i]f the election form is not filed on Form PTE-E through MAT in a timely manner, the election to become an Electing Pass-Through Entity will be denied.”

Unfortunately, a substantial number of taxpayers overlooked this requirement and failed to make a timely election on MAT when filing their 2021 PTE Tax returns earlier this year, mistakenly assuming that making the required PTE Tax payments and/or timely filing the PTE Tax return was all that was required to make the election.

Recognizing this oversight came in the first year of the PTE Tax’s existence and the number of missed elections, the ADOR announced that it is reopening the electronic filing window on July 1. Taxpayers will now be able to make the online PTE Tax election for the 2021 tax year between July 1 and August 15, 2022. Calendar year taxpayers would ordinarily have been required to make the election by March 15, 2022.

According to the announcement, the late-filed PTE Tax election is conditioned on the PTE having:

  • timely filed the required entity and member tax returns, as if the election had been properly made for the 2021 tax year;

  • timely made an electing pass-through entity extension payment; or

  • made an entity-level tax payment prior to the due date of the respective return.

This development comes as a tremendous relief to the significant numbers of taxpayers who were unaware that a separate election had to be made via MAT. We commend the ADOR Commissioner’s office for their quick action to resolve this matter.

© 2022 Bradley Arant Boult Cummings LLPNational Law Review, Volume XII, Number 175
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About this Author

Bruce P. Ely Attorney Federal Tax Bradley Arant Law Firm Birmingham
Partner

Bruce Ely’s more than 35 years of experience have allowed him to handle projects as diverse as serving on the recruiting teams that successfully induced both Mercedes-Benz and Hyundai to locate their first U.S. manufacturing plants in Alabama to representing taxpayers before the Internal Revenue Service, the Alabama Department of Revenue and local taxing authorities. His practice focuses on three concentric areas: representing taxpayers in federal, state and local administrative and judicial forums; advising companies on choosing the proper form of entity through which...

205-521-8366
William T. Thistle, II Attorney Tax  Law Bradley Arant Law Firm Birmingham
Partner

Will Thistle practices primarily in the areas of federal and state and local taxation. He regularly counsels public and private businesses on Alabama tax matters, with particular emphasis in the areas of sales, use, and property taxes.

A significant portion of Will's practice is dedicated to the representation of taxpayers in all phases of federal, state, and local tax controversy, including audit assistance, administrative hearings, and litigation. Other areas of his practice include advising clients with regard to business license obligations...

205-521-8985
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