CA enacts tax relief for pass-through owners and others

| 2/17/2022
CA enacts tax relief for pass-through owners and others

On Feb. 9, California Gov. Gavin Newsom signed Senate Bill 113, which includes the following tax relief measures that are applicable for tax years beginning on or after Jan. 1, 2021, unless otherwise indicated:

Provides pass-through entity tax (PTET) relief

  • Allows the California PTET credit to reduce a partner, member, or shareholder’s regular tax on its California income tax return below the tentative minimum tax
  • No longer automatically disqualifies an eligible pass-through entity from making the PTET election when it has a partnership or a limited liability company that is taxed as a partnership as its partner, member, or shareholder
  • Adds guaranteed payments as defined under IRC Section 707(c) to the definition of qualified net income subject to the 9.3% PTET
  • Allows single-member limited liability companies that are disregarded for federal income tax purposes and owned by individuals, trusts, fiduciaries, or estates to claim the PTET credit
  • Effective for tax years beginning in 2022, adjusts the ordering rules allowing a credit for net income taxes paid to other states to be claimed before the PTET credit
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Repeals limitations on the use of net operating loss (NOL) deductions and business credits

  • Reinstates the NOL deduction for businesses and individuals with $1 million or more of net income subject to tax in California for tax years beginning in 2022, which is one year earlier than the deduction originally was set to expire
  • Removes the annual limitation on using business credits to offset more than $5 million of net income for tax years beginning in 2022, which is one year earlier than the limit was set to expire

Provides other relief

  • Retroactively conforms to the federal income tax exclusion for restaurant revitalization grants to tax years beginning in 2020
  • Conforms to the federal income tax exclusion related to the shuttered venue operator grants retroactively to tax years beginning in 2019 for entities awarded a grant that are not publicly traded companies and that meet the gross receipts reduction requirements of Section 636 (a)(37)(A)(iv)(bb) of Title 15 of the United States Code

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Stay up to speed on regulatory and legislative tax changes with timely updates from Crowe.

The Dec. 15, 2021, event included a federal tax legislative update followed by two concurrent breakout sessions.

Stay up to speed on regulatory and legislative tax changes with timely updates from Crowe.

The Dec. 15, 2021, event included a federal tax legislative update followed by two concurrent breakout sessions.

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Marc Shayer
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