One of the many tax-related bills that were sent to the Governor this week is SB 851, which would “fix” the issue Spidell and other tax professionals have raised concerning the interplay between the Passthrough Entity Elective Tax Credit and the Other State Tax Credit.
As we’ve previously reported, the FTB took the position that in calculating the amount of “double taxed” income for purposes of calculating the Other State Tax Credit, a taxpayer’s California tax liability must be reduced by the amount of Passthrough Entity Elective Tax Credit claimed. This has the effect of dramatically reducing the amount of the Other State Tax Credit a California resident taxpayer could claim.
If enacted, SB 851 would correct this issue for post-2021 tax years by allowing California resident taxpayers to add back the Passthrough Entity Elective Tax Credit in calculating their California tax liability for purposes of computing the Other State Tax Credit.
Unfortunately, the bill does not address any fixes to the June 15 prepayment requirements for the passthrough entity elective tax.
The Governor has 30 days to either sign or veto the bill. We will keep you posted on SB 851 as well as the numerous other tax-related bills that were sent to the Governor, including the wildfire settlement exclusion bills.
The text of SB 851 is available at: