House Bill 1668

(As Sent to Governor)

AN ACT TO AMEND SECTION 27-7-26, MISSISSIPPI CODE OF 1972, TO REVISE THE METHOD BY WHICH A PARTNERSHIP, S CORPORATION OR SIMILAR PASS-THROUGH ENTITY MAY ELECT TO BECOME AN ELECTING PASS-THROUGH ENTITY FOR INCOME TAX PURPOSES, AND BY WHICH SUCH ELECTION MAY BE REVOKED; TO INCLUDE EACH OWNER'S, MEMBER'S, PARTNER'S OR SHAREHOLDER'S PRO RATA OR DISTRIBUTIVE SHARE OF THE ELECTING PASS-THROUGH ENTITY'S INCOME IN THE COMPUTATION OF SUCH INDIVIDUAL TAXPAYER'S INCOME TAX LIABILITY; TO PROVIDE THAT THE INDIVIDUAL TAXPAYER'S CREDIT SHALL BE EQUAL TO HIS OR HER PRO RATA OR DISTRIBUTIVE SHARE OF TAX DUE BEFORE APPLICATION OF ANY ENTITY-LEVEL CREDITS BY THE ELECTING PASS-THROUGH ENTITY; TO PROVIDE THAT ANY ADDITIONAL INCOME TAX CREDITS GENERATED BY AN ELECTING PASS-THROUGH ENTITY SHALL PASS THROUGH TO THE OWNERS, MEMBERS, PARTNERS OR SHAREHOLDERS ON A PRO-RATA BASIS AND MAY BE CLAIMED ON THE RETURNS OF THOSE TAXPAYERS; TO PROVIDE THAT IF AN OWNER'S, MEMBER'S, PARTNER'S OR SHAREHOLDER'S AGGREGATE INCOME TAX CREDITS EXCEED HIS OR HER INCOME TAX LIABILITY, SUCH EXCESS SHALL BE CARRIED FORWARD AS AN OVERPAYMENT OR REFUNDED AT THE ELECTION OF SUCH PERSON; TO PROVIDE THAT ANY CARRYFORWARD LIMITATIONS APPLICABLE TO CREDITS GENERATED BY THE PASS-THROUGH ENTITY, OTHER THAN THE CREDIT PROVIDED BY THIS SECTION FOR INCOME TAXES PAID BY THE PASS-THROUGH ENTITY, SHALL APPLY AT THE OWNER, MEMBER, PARTNER OR SHAREHOLDER LEVEL; AND FOR RELATED PURPOSES.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:

SECTION 1. Section 27-7-26, Mississippi Code of 1972, is amended as follows:

27-7-26. (1) (a) For calendar year 2022, and for each calendar year thereafter, any partnership, S corporation or similar pass-through entity may elect to be taxed as an electing pass-through entity and pay the tax imposed under this chapter at the entity level. For the purposes of this section, the term "electing pass-through entity" means a partnership, S corporation or similar pass-through entity that has made an election pursuant to this section.

(b) A partnership, S corporation or similar pass-through entity desiring to be taxed as an electing pass-through entity shall submit the appropriate form to the department * * * ~~of Revenue~~ at any time during the tax year * * * for which the entity elects to be taxed as an electing pass-through entity, or by the due date of the return for that tax year, or by the date such return is filed, whichever is latest. This election shall be binding for that taxable year and all taxable years thereafter and shall not be revoked unless the electing pass-through entity submits the appropriate form to the department at any time during a subsequent taxable year * * * for which the entity elects to no longer be taxed as an electing pass-through entity, or by the due date of the return for that tax year, or by the date such return is filed, whichever is latest. Both the election to become an electing pass-through entity and the revocation of that election shall be accomplished by a vote satisfying such threshold required for taking official action as may be specified within the entity's governing documents, within the time prescribed in this subsection. If the entity's governing documents do not contain any such provisions governing the approval of official actions, such election shall be accomplished by * * * a vote by or written consent of the owners, members, partners or shareholders holding greater than fifty percent (50%) of the voting control of the entity, and also, if the entity has a governing body, by a vote by or written consent of the members of the governing body, within the time prescribed in this subsection.

(c) Each owner, member, partner or shareholder of an electing pass-through entity shall report his or her pro rata or distributive share of the income of the electing pass-through entity * * *, and such share shall be used in computing the taxpayer's gross income tax liability. Each owner, member, partner or shareholder of an electing pass-through entity shall be allowed a credit against the taxes imposed under this chapter in an amount equal to his or her pro rata or distributive share of tax paid by the electing pass-through entity with respect to the corresponding taxable year. Any additional income tax credits generated by the electing pass-through entity shall pass through to the owners, members, partners or shareholders on a pro-rata basis and may be claimed on the returns of those taxpayers. In the event an owner's, member's, partner's or shareholder's aggregate credits shall exceed his or her income tax liability, such excess shall be carried forward as an overpayment or refunded at the election of such person. Any carryforward limitations applicable to credits generated by the electing pass-through entity, other than the credit provided by this section for income taxes paid by the electing pass-through entity, shall apply at the owner, member, partner or shareholder level.

(2) The adjusted basis of the owners, members or partners of an electing pass-through entity in their ownership interests in the electing pass-through entity shall be calculated without regard to the election under this section.

SECTION 2. This act shall take effect and be in force from and after January 1, 2023, and shall be applicable to any income tax returns the original due date of which are on or after such date.