ADOR Grants Extension to Make PTE Tax Election for 2021 Tax Year

Bradley Arant Boult Cummings LLP

Bradley Arant Boult Cummings LLP

Readers may recall that the Alabama Legislature unanimously enacted an elective pass-through entity tax (PTE Tax) last year as a workaround to the so-called “SALT Cap,” which was part of the Tax Cuts and Jobs Act of 2017. The SALT Cap limits the deductibility of state and local taxes to $10,000 (MFJ) annually.

Alabama’s PTE Tax was retroactively effective to January 1, 2021, and the Alabama Department of Revenue (ADOR) promulgated an administrative rule in February 2022 that set forth the procedures for making the PTE Tax election. As we previously reported, both the preliminary and final version of the rule required taxpayers to make the PTE Tax election electronically via the ADOR’s My Alabama Taxes (MAT) website “on or before the fifteenth day of the third month following the close of the tax year for which the entity elects to be taxed as an Electing Pass-Through Entity.” According to the rule, “[i]f the election form is not filed on Form PTE-E through MAT in a timely manner, the election to become an Electing Pass-Through Entity will be denied.”

Unfortunately, a substantial number of taxpayers overlooked this requirement and failed to make a timely election on MAT when filing their 2021 PTE Tax returns earlier this year, mistakenly assuming that making the required PTE Tax payments and/or timely filing the PTE Tax return was all that was required to make the election.

Recognizing this oversight came in the first year of the PTE Tax’s existence and the number of missed elections, the ADOR announced that it is reopening the electronic filing window on July 1. Taxpayers will now be able to make the online PTE Tax election for the 2021 tax year between July 1 and August 15, 2022. Calendar year taxpayers would ordinarily have been required to make the election by March 15, 2022.

According to the announcement, the late-filed PTE Tax election is conditioned on the PTE having:

  • timely filed the required entity and member tax returns, as if the election had been properly made for the 2021 tax year;
  • timely made an electing pass-through entity extension payment; or
  • made an entity-level tax payment prior to the due date of the respective return.

This development comes as a tremendous relief to the significant numbers of taxpayers who were unaware that a separate election had to be made via MAT. We commend the ADOR Commissioner’s office for their quick action to resolve this matter.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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