California AB 150 PTE Tax Affects Tax Credits on non-resident

Several thoughts:

1. Why does Arkansas tax CA income for an Arkansas resident?

2. The PTE, if paid in 2021, reduced his Federal, Ark and CA taxes so that should be explained to your client.

3. The OSTC is secondary to the PTE.  This clarifies. Hope you solve it.

Passthrough entity tax OSTC fix enacted (09-29-22)

The Governor has signed SB 851, which fixes the reduction in the Other State Tax Credit (OSTC) that resulted for taxpayers claiming the Passthrough Entity Elective Tax Credit for taxable years beginning on or after January 1, 2022.

Although SB 113 (Ch. 22-3) changed the ordering rules for post-2021 taxable years, so that the OSTC is claimed prior to the Passthrough Entity Elective Tax Credit, according to the FTB it did not change how the OSTC was calculated. This had the effect of dramatically reducing the amount of the OSTC a California resident taxpayer could claim.

SB 851 increases the amount of the California “net tax” used to calculate the OSTC by the amount of the Passthrough Entity Elective Tax Credit claimed, thereby allowing taxpayers who claim both credits to receive the full amount of the OSTC they would have claimed if they had not claimed the Passthrough Entity Elective Tax Credit. 

SB 851 does not “fix” the mandatory June 15 prepayment requirements. Taxpayers who failed to make the required prepayment for June 15, 2022, will not be able to make the election for the 2022 taxable year unless a legislative fix is enacted next year.

Once again, credit to Spidell.