October 28, 2021

Massachusetts Enacts Pass-through Entity Tax Over Governor’s Veto

By Paul Graney, Partner, Tax & Business Services

Massachusetts Enacts Pass-through Entity Tax Over Governor’s Veto State & Local Tax

An elective pass-through entity (PTE) tax has been enacted by the Massachusetts Legislature, overriding Governor Baker’s veto of H4009.

The election is effective for tax years beginning on or after January 1, 2021. The specifics on how to make an election and its full application will be addressed in a regulation currently under development by the Commissioner of Revenue.

Some basic components of the tax that have been addressed thus far are as follows:

  • If a PTE elects to pay the tax at the entity level, it will be at a rate of 5%.
  • Partners or shareholders will be allowed a credit of 90% of the tax paid at the entity level, to be applied on the Massachusetts individual income tax return filed by the partner or shareholder.
  • An eligible PTE is an S-corporation, a partnership or a limited liability company.
  • The election is irrevocable and is binding on all members of the electing PTE.
  • The credit allowed on the PTE tax will be refundable on the individual owners’ personal income tax returns.

An updated article will be issued once the regulation is finalized. Your State and Local Tax advisors at Marcum will keep you apprised of this change in law and how it may affect you.