Mississippi Enacts Pass-through Entity Tax

Mississippi House Bill 1691, Pass-through Entity Tax (PTET), provides certain individual taxpayers a useful workaround of the $10,000 State and Local Tax (“SALT”) deduction limitation established by the federal 2017 Tax Cuts and Jobs Act. With this legislation Mississippi joins over 20 other states in enacting such laws since the IRS released guidance in November 2020 essentially approving this workaround.

The PTET election allows any partnership, S-corporation or other pass-through entity to elect to pay tax at the entity level and pass along to partners, shareholders, or members a credit for their distributive, or pro rata, share of taxes paid.

MAKING THE ELECTION

Generally, the annual election must be made by the eligible pass-through entity on or before the 15th day of the third month following the close of the taxable year. The election may be made by the following eligible individuals:

• For S-corporations – Any officer, manager, or shareholder who is authorized to make the election.
• For other entities – Any member, partner, owner, or other individual with authority to bind the entity or sign returns.

An individual taxpayer who is a direct partner or member in an electing partnership or a direct shareholder of an electing S-corporation subject to the PTET may claim a credit against such partner or shareholder’s Mississippi personal income tax return.

REQUIREMENTS

To make the election to be taxed at the entity level, pass-through entity taxpayers must file the election on the Pass-Through Entity Election Form, Form 84-381, on or before the 15th day of the third month following the close of the taxable year. The same form is used in the event an entity revokes the election in a later year. This can be done separately from the tax return filing in order to ensure it is filed timely.

Each entity may only file either a composite tax return or make the PTET election, but not both. Once the PTET election is made, an entity must continue to file in that manner unless permission to change is granted by the Mississippi Department of Revenue.

CONCLUSION

Many states are now enacting a pass-through entity tax election following the IRS guidance allowing these programs. PTEs considering the election should take into account that it is binding for future years, the requirement for all members to make the election, what is included in the taxable income base, and how the benefit gets distributed among the entity’s members or partners.

For additional information regarding how the PTE election rules may affect you, do not hesitate to contact your Marcum State and Local Tax professional.