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Montana Issues Additional Guidance on Pass-Through Entity Tax Election

The Montana Department of Revenue has issued clarifying guidance for the pass-through entity tax election.
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On May 19, 2023, Montana passed Senate Bill 554 (SB 554), as detailed in our FORsights article, “Montana Set to Enact Pass-Through Entity Tax Election.” The Montana Department of Revenue (DOR) issued clarifying guidance for this election on November 2, 2023.1

Key points from the update issued by the DOR include:

  • The pass-through entity (PTE) tax rate for 2023 is 6.75% and will drop to 5.9% beginning in tax year 2024.
  • The annual election is to be made on the electing entities’ timely filed tax return, Form PTE, including extensions.
  • While the pass-through entity tax (PTET) is calculated based on each owner’s distributive share of income apportioned or allocated to Montana, the electing entity may choose to make an additional election to allow PTET for Montana resident shareholders to be calculated on pre-apportioned distributive income. The DOR emphasizes that “great care should be exercised by S corporations in the use of this election when the entity has resident and nonresident owners, as such election may create a second class of stock.” Consult a professional at Forvis Mazars for additional guidance.
  • Quarterly estimated payments are required to be made in the tax year following the initial election. For a calendar-year PTE, payments are due April 15, June 15, September 15, and January 15. Estimated payments can be made on TAP, the DOR’s taxpayer portal, without an account.
  • Senate Bill 554 indicated the PTE election would be paid in lieu of composite and withholding tax; however, the newly issued guidance states that excess PTET payments will be first applied to composite tax and then to withholding tax. Additional guidance is still needed to clarify this discrepancy.
  • Underpayment penalties and interest will not be assessed for tax year 2023 but will apply beginning in tax year 2024.    
  • PTEs must use flow-through payments received (mineral royalty withholding, pass-through withholding, and PTET credit passed up from a lower tier) to offset its PTE liability.
  • Income tax credits cannot be used to offset the PTE liability and must be passed down to owners to use on their Montana individual/trust returns.
  • Resident owners are allowed a credit for taxes paid to other states. The DOR clarifies that this includes payments made to another state’s PTET.

Forvis Mazars will continue to monitor this legislation for updates. If you have any questions or need assistance, please reach out to a professional at Forvis Mazars.

  • 1“Montana Pass-Through Entity Tax,”, November 2, 2023.

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