State & Local Tax

The PTE-E Tax Estimates

November 11, 2022

Oregon is one of the many states that created a workaround for the Federal SALT deduction limitation of $10,000 created under the Tax Cuts and Jobs Act of 2017.  The election was introduced under Senate Bill 727 in 2021.  Subsequently, in the 2022 session, the legislature passed Senate Bill 1524 that provided for the requirement of estimates to be paid by an entity making the PTE-E election.   The long-awaited proposed regulations regarding the Oregon Pass-Through Entity Tax Election (PTE-E) were released on October 25, 2022.

Of the proposed rules that were released last week, several topics were covered.  Our first article took a look at the updates to nonresident withholding and composite filings in relation to the new PTE-E rules.  This next one will cover a completely new administrative rule (Or. Admin. R 150-314-0521) that outlines the specific requirements for the required estimated tax payments.  In general, the estimates will follow current rules related to individuals for both calculations and deadlines.  All entities with a tax liability over $1,000 reported on the PTE-E form are required to make estimated payments.

The PTE-E tax will ALWAYS be based on a calendar year which is the twelve-month period beginning January 1 and ending on December 31.  We will take a deeper look at fiscal year filers in another post.  For an electing entity, the required annual payment is the total amount of estimated PTE-E tax to be paid for the tax year which an election will be made.[1]  The tax year can be either calendar year or a fiscal year.   This chart shows the portion of the year that is required to be paid in each of the periods.  For a calendar year taxpayer, the installment periods and payment periods line up.

PERIOD #MONTHS INCLUDED IN THE INSTALLMENT PERIODSMONTHS INCLUDED IN THE PAYMENT PERIOD
1First three monthsJanuary, February, March
2Months four and fiveApril, May
3Months six, seven and eightJune. July, August
4Months nine, ten, eleven and twelveSeptember, October, November, December

The due dates for quarterly payments are the same as the dates for personal income taxes (April, June, September, and January).  The first step is to determine the annual payment required.  Note that this rule indicates that the required estimates are based on the entity’s distributive proceeds which are defined in SB 727.[1]  As with other Oregon rules, the safe harbor amounts are 90% of the current balance due on the PTE-E or 100% of the prior year’s liability (as long as it was 12 months).  Under the regular installment method, required installment payments are 25% of the required annual payment.

If your entity uses the annualized method for calculating quarterly estimates, the required annualized installment payment is the applicable percentage of the required annual payment less the amount of required installments already paid for the same year.

Installment PeriodAnnualized %
122.5%
245%
367.5%
490%

This new administrative rule provides an overview of the general rules for calculating and paying estimated taxes.  As with other Oregon tax payments, the Department of Revenue prefers that you sign up with RevenueOnline to make your payments through the website portal.  In the event that an entity makes estimated tax payments but ultimately does not end up making the Pass-Through Entity Election, there will be a new procedure/form provided by the DOR that will the entity to request a refund.

Commentary:

In this new rule, the Department of Revenue appears to create somewhat of a contradictory explanation of how to calculate the estimates.  Senate Bill 727 very clearly defines “distributive proceeds” as the net income, dividends, royalties, interest, rents, guaranteed payments and gains of a pass-through entity.[1]  In the original interpretation of “proceeds,” the Department of Revenue indicated that no deductions would be allowed.  In the newly released rule, distributive income is now defined as “income of an electing entity from Oregon sources that will be distributed to members and used to calculate the PTE-E tax.”[2]  However, when explaining how to calculate the estimates, this new rule indicates that the “amount of estimated PTE-E tax to be paid is calculated using the sum of the electing entity’s distributive proceeds from Oregon sources for the tax year that ends during the calendar year for which the election will be made.”[3]  Which is it – income or proceeds?  The term “distributive income” is more widely used and is in fact defined in existing rules that links the Oregon definition to the federal definition.[4]  Given that Oregon already defines both “modified distributive income”[5] which takes Oregon tax adjustments into consideration, as well as “Oregon-sourced distributive income”[6], it presents a question of, why not link the PTE-E definitions to the already established rules?  Or is there something to the “proceeds” definition and interpretation that taxpayer’s need to be aware of when preparing the PTE-E tax?

As part of the rule-making process, the Oregon Department of Revenue will accept comments on the proposed rules until November 29 when there will be a public hearing conducted online via a Microsoft Teams meeting either by video or telephone.

The State and Local Tax Team at Geffen Mesher is available to assist with the PTE-E all of your tax needs.

  1. Or Admin. R. 150-314-0521(1)(f).
  2. “Distributive proceeds” means the net income, dividends, royalties, interest, rents, guaranteed payments and gains of a pass-through entity, derived from or connected with sources within this state.
  3. Senate Bill 727, Section 2(1).
  4. Or Admin. R. 150-314-0521(1)(c).
  5. Or Admin. R. 150-314-0521(4).
  6. Id.
  7. Or Admin. R. 150-314-0510(6).
  8. Or Admin. R. 150-314-0510(7).