When Virginia first enacted its Pass-Through Entity Tax (PTET) legislation, it limited the election to qualifying pass-through entities. As a result, only pass-through entities that were 100 percent owned by natural persons or persons eligible to be shareholders of an S corporation were eligible to make the PTET election. Partnerships that had other entities as owners were precluded from making the election.
Under legislation enacted by the 2023 General Assembly, the qualifying pass-through entity requirement is repealed and replaced by an eligible owner requirement. Under the eligible owner requirement, all pass-through entities are eligible to make the PTET election, but only eligible owners are eligible to claim refundable PTET credits. Eligible owners include an owner of a pass-through entity who is (1) a natural person subject to Virginia’s individual income tax, or (2) an estate or trust subject to Virginia’s fiduciary income tax.
Please refer to Virginia’s Tax Bulletin 23-3 for more information.
The change in the legislation opens the PTET election to many more pass-through entities. However, the rules are complex. Please contact us or consult your tax advisor to determine if the PTET election is right for your business.