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Pennsylvania State Senate
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Senate of Pennsylvania
Session of 2023 - 2024 Regular Session


Posted: March 3, 2023 04:53 PM
From: Senator Ryan P. Aument
To: All Senate members
Subject: Resident Tax Credit for Small Businesses
In the near future I intend to introduce a bill to provide small business partners with the same protection from double taxation enjoyed by S corporations. Currently, Pennsylvania resident business partners subject to pass-through entity taxes in other jurisdictions incur a double tax based on the denial of a Pennsylvania resident credit in spite of the fact that a similar credit is currently available to resident S corporation shareholders.  My legislation would allow the same credits for resident partners, ending this form of double taxation.
In response to the federal $10,000 limitation on state and local tax deductions (SALT Cap), more than 29 states have enacted elective entity-level taxes (PTET) on pass-through entities, including partnerships and S corporations.  Under these PTET, tax is paid at the entity level instead of directly by the owners with the objective of collecting the same amount of tax from the entity as from the owners.  Pennsylvania resident owners of these entities remain subject to tax on all of their income and should be allowed the same credit which would be available if the other states’ taxes were imposed directly on the owners.  Many of the PTET elections are made by the pass-through entity itself, or a majority of its owners.  Therefore, some Pennsylvania resident partners may be required to be included in these PTET returns even though they may be double taxed by their resident state – Pennsylvania.
The Pennsylvania Department of Revenue (DOR) has articulated its position that a Pennsylvania resident partner is not entitled to a credit against Personal Income Tax (PIT) for PTET paid to other states. This contrasts with the DOR position that a Pennsylvania resident S corporation shareholder is eligible for a similar PIT credit. DOR points to legislation specific to S corporations to support this disparate treatment and the potential double-taxation of partnership income.
This means resident partners face a Pennsylvania tax increase simply due to their inclusion in another state’s PTET return. Other states that had similar resident credit disallowance for partnerships affirmatively fixed the issue in their PTET legislation (New York and Virginia, for example).
I respectfully ask for your consideration to join me as a co-sponsor of this legislation and show our support of small business by protecting them from double taxation.


Introduced as SB660