Bill > HSB69

Introduced Session

This bill relates to an entity-level taxation election for pass-through entities and allows a partner or shareholder to claim a credit against the individual income tax. For tax years ending on or after December 31, 2022, and beginning prior to January 1, 2026, a taxpayer (a partnership, other than a publicly traded partnership, or a subchapter S corporation), may elect to be subject to tax at the partnership or S corporation level in an amount equal to the applicable tax rates under Code section 422.5A imposed against the taxable income of the taxpayer for the taxable year. Currently, the taxable income of a partnership or S corporation passes through to the partners or shareholders of the entity and is subject to the individual income tax at the partner or shareholder level. The bill only applies to tax years as long as the limitation on individual deductions applies under section 164(b)(6) of the Internal Revenue Code. If an election is made, the partners or shareholders are allowed a credit against the individual income tax equal to H.F. _____ the ratio of the partner’s or shareholder’s share of taxable income over the total taxable income multiplied by the state tax liability of the electing taxpayer. The bill limits the number of credits the taxpayer is eligible for if the taxpayer elects to be subject to tax at the partnership or S corporation level. The bill also prohibits the taxpayer from claiming a net operating loss or electing to carryback or carryforward a loss. The bill does allow the taxpayer, if the taxpayer is a financial institution, to claim the franchise tax credit in Code section 422.11 equal to the amount of franchise tax paid by the taxpayer. If the amount of credit allowed under the bill exceeds the tax liability of the partner or shareholder for the tax year, the excess may be credited to the tax liability of the partner or shareholder for the following five tax years or until depleted, whichever occurs first. The bill specifies that the partners or shareholders shall be jointly and severally liable to pay any unpaid tax. For tax years where an election is made, the withholding requirements of Code section 422.16 do not apply. The bill does require the taxpayer to make estimated tax payments pursuant to Code section 422.85, if applicable. However, a taxpayer electing to be taxed at the partnership level or at the S corporation level is not required to make estimated tax payments for a tax year beginning prior to the effective date of the bill.

Committee Categories

No sponsors listed

Other Sponsors (1)

Committee report approving bill, renumbered as HF 352. (on 02/20/2023)

Official Document