The state of Missouri announced that it will permit members of pass-through entities (PTEs) to opt out of the elective entity-level tax under HB 1912, which was signed by Governor Mike Parson (R) on 10 July, 2024.

The HB 1912 will take effect on 28 August, 2024.

This follows after Missouri implemented the SALT Parity Act in 2023, permitting PTEs to opt for tax payments at the entity level. This serves as a workaround for the federal USD 10,000 threshold on state and local tax deductions on federal returns.

Current law provides that, in lieu of a corporate income tax on a pass-through entity, shareholders of such pass-through entity shall pay income tax on the shareholder’s pro rata share of the entity’s income attributable to Missouri. For tax years beginning on or after 1 January 2023, this act allows the pass-through entity to elect to pay the tax, as described in the act.

The tax shall be equal to the sum of each member’s income and loss items, as described in federal law, reduced by a deduction allowed for qualified business income, as described in federal law and modified by current provisions of state law relating to the taxation of pass-through entities, with such sum multiplied by the highest rate of tax in effect for the state personal income tax.

A nonresident who is a member, as defined in the act, shall not be required to file a tax return for a tax year if, for such tax year, the only income derived from this state for such member is from one or more affected business entities, as defined in the act, that has elected to pay the tax imposed under this act.

Each partnership and S corporation shall report to each of its members, for each tax year, the member’s pro rata share of the tax imposed by this act.

HB 1912 permits a member of an electing PTE to opt out of the SALT Parity Act’s taxation methods. If any PTE members choose to opt-out, the affected PTE will exclude the allocable income and deduction items of those members.

HB 1912 requires PTE members to file a timely opt-out election, applicable for the current and all future tax years. The filing must be done before or with their annual tax return within the 15th day of the fourth month after the tax year ends.

Under HB 1912, non-resident PTE members opting out must agree to file a Missouri non-resident return on their adjusted gross income, make timely tax payments, and be subject to Missouri’s tax collection jurisdiction.

The bill also extends the SALT Parity tax credit eligibility to fiduciaries of estates or trusts that are members of an electing PTE.