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Panel hears proposal to extend pass-through entity elective tax, tied to federal SALT negotiations
Summary
The Department of Finance proposed a contingency extension of California's passthrough entity elective tax (PTET) through tax year 2030 if the federal SALT cap is extended, and proposed allowing late prepayments subject to a 12.5% reduction in the credit; CPAs and national accounting firms expressed support.
The subcommittee considered the administration's proposal to extend the pass-through entity elective tax (PTET) for tax years 2026 through 2030, subject to a federal SALT-cap trigger. Nick Thomas of the Department of Finance explained PTET's mechanics: a business entity may elect to pay tax at the entity level and generate credits for owners, thereby avoiding the federal $10,000 state-and-local tax (SALT) deduction cap.
DOF told members that the PTET workaround has materially reduced federal tax liabilities for California taxpayers and estimated the PTET has saved California taxpayers roughly $3.5'$4 billion per year in federal taxes. The administration also proposed allowing taxpayers to make late prepayments beginning in tax year 2026 while imposing a 12.5% reduction in the credit for late prepayments to preserve an incentive to prepay.
Representatives of the California Society of CPAs and national accounting firms testified in favor of extending and refining the program, emphasizing operational access for taxpayers amid federal uncertainty. LAO and members pressed for trailer-bill technical fixes and clarity on contingent triggers tied to federal action.
No formal vote was taken in this informational hearing. DOF and stakeholders indicated they will continue negotiations on trailer language and monitor federal SALT negotiations.
