Pass-through entity SALT cap workaround bills signed

The VSCPA successfully helped get HB 1121 and SB 692 passed by the 2022 Virginia General Assembly with several technical amendments, and Gov. Glenn Youngkin signed the bills April 11, 2022.

The bills adopt the ability to pay entity-level taxes for qualifying pass-through entities (PTE), i.e., the workaround for the State and Local Tax (SALT) cap. We also sought amendments to the bill to address the out-of-state credit (OSC) disallowance highlighted by the Virginia Department of Taxation’s (TAX) Dec. 28, 2021 (PDF), ruling. The OSC will be effective for tax years beginning on and after Jan. 1, 2021, but only with the ability to pay an entity-level tax after-the-fact for 2021 returns because programming cannot be completed in time for the current filing season. That will be available for the 2022–2026 seasons.

The bills passed unanimously and await Gov. Glenn Youngkin’s signature. Because they do not have an emergency clause, they will go into effect on July 1. TAX will publish guidance and request public comments; the VSCPA will be involved in the process.

Back in August 2021, the VSCPA sent a letter to Virginia Tax Commissioner Craig Burns asking for a ruling on the credit for state income taxes paid to another state by Virginia residents who are owners in pass-through entities (PTEs) that make an election to be taxed at the entity level. The letter was prompted by legislation passed in Maryland that allowed that PTEs to elect to pay Maryland taxes on behalf of all members, regardless of where the owners reside. After TAX's December ruling, VSCPA members requested a legislative fix for the issue.

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