Earlier this year, Alabama became one of 19 or so states to enact a pass-through entity tax as a workaround to the so-called "SALT Cap" enacted as part of the Tax Cuts and Jobs Act of 2017, which limits the deductibility of state and local taxes to $10,000 (MFJ) annually.

Background The Alabama Electing Pass-Through Entity Tax Act (Act 2021-1) established a new alternate state income tax applicable only to electing partnerships/LLCs treated as pass-through entities and to S corporations (collectively, “PTE’s”). For tax years beginning on or after January 1, 2021, a PTE can elect annually to be taxed at the entity level for Alabama income tax purposes at the highest marginal individual income tax rate (currently 5%) calculated in accordance with the Subchapter K or Subchapter S rules, as appropriate, and apportioned in accordance with Alabama’s multistate corporation apportionment rules...

Originally published in ASCPA's Connections - November-December 2021.