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
