Governor Signs PTE Tax Simplification Bill into Law

SALT Alert: Alabama Edition

Client Alert

Author(s) ,

On Thursday, April 25, Gov. Kay Ivey signed into law House Bill 187, now Act 2024-113.  We thank Governor Ivey for her support of this bill, as well as the Department of Revenue and Commissioner Barnett for their efforts spearheading the bill through the Legislature.  We also thank the  Alabama Society of CPAs President, Jeannine Birmingham, for her leadership and support of this important legislation.

Most readers are aware of the two extensions granted by the Department of Revenue in order to allow more S corporations and entities classified as partnerships under IRC Subchapter K (collectively, “PTEs”) to elect into Alabama’s PTE Tax Regime. The statute, Alabama Code section 40-18-24.4, allows the entity to annually pay a flat 5% income tax on its earnings apportioned and allocated to Alabama, in lieu of its owners doing so on their individual tax returns. The owners then claim their distributive or pro rata share of the tax as a credit on their Alabama returns.

For tax years prior to CY 2024, the entity had to file the election electronically through its MAT (My Alabama Taxes) account, on or before March 15 of the year following the year for which the election is to first apply, for CY filers. Many taxpayers and their return preparers assumed that the election, like many others, could be made by the extended due date of that return, and many did not understand the significance of making the election on their MAT account. Act 2024-113 allows CY taxpayers to make the election for 2024 on or before September 15, 2025, via their MAT account. For tax years beginning on or after January 1, 2025, the election may be made on the tax return itself (vs. via MAT), “including any extensions which have been granted.”

As with most of the 39 or so states (plus D.C.) offering this so-called “SALT cap workaround,” once the election is validly made, it remains in effect until properly revoked. Alabama’s version will remain in effect even if Congress repeals or substantially modifies the SALT cap or allows it to sunset as scheduled on December 31, 2025. Most observers predict the SALT cap will remain in effect, although probably with a higher cap than the current $5,000/$10,000 limit.