On June 27, 2025, California Governor Gavin Newsom signed Senate Bill (SB) 132 into law, extending the availability of the Pass-Through Entity (PTE) Elective Tax — a state-level workaround to the federal State and Local Tax (SALT) deduction cap introduced under the 2017 Tax Cuts and Jobs Act.
Originally enacted under Assembly Bill 150 (AB 150) and later modified by AB 158 and AB 87, the PTE Elective Tax allows qualifying pass-through entities (primarily S corporations, partnerships, and LLCs treated as partnerships or S corps) to elect to pay a state income tax at the entity level. This election enables the entity’s owners to receive a tax credit for their share of taxes paid, thus potentially bypassing the
federal SALT cap.
Key provisions of SB 132 regarding CA PTE are as follows:
- Extended Sunset Date
- Extends the PTE Elective Tax program through taxable year 2030 (previously set to expire after 2025)
- Applies to tax years beginning on or after January 1, 2021, and now ending before January 1, 2031
- Eligible Entities
- Reaffirms that the following are eligible entities to make the election:
- S corporations
- Partnerships
- LLCs taxed as partnership or S corporations
- Qualified taxpayer (partner, member or shareholder) can be:
- Individual
- Fiduciary
- Estate
- Trust
- Disregarded single-member LLC owned by such entities
- Ineligible entities include:
- Publicly traded partnerships
- Entities permitted or required to be in a combined reporting group
- Prepayment Requirements and Election Mechanics
- Election must be made annually on an original, timely filed return
- For tax years 2026 through 2030, the bill relaxes the strict prepayment requirements and introduces a penalty for late or insufficient payments
- Missing the mid-June prepayment will no longer disqualify the election after 2025
- Missing the mid-June prepayment or making an insufficient payment will result in each owner’s PTE credit to be reduced by 12.5% for any shortfall, and interest and penalties may apply
- The elective tax remains at 9.3% of qualified net income
- The non-refundable credit continues to flow through to owners as before and may be carried forward for up to 5 years
Considerations and Conclusion
SB 132 ensures continued availability of the PTE Elective Tax through 2030, solidifying California’s commitment to mitigating the effects of the federal SALT deduction cap for qualifying taxpayers. The extended timeframe and relaxed prepayment requirements provide greater certainty for tax planning and allows pass-through entities to incorporate the election into their ongoing strategy.
We are always available to assist you in evaluating how SB 132 and the extended PTE Elective Tax program may impact your business. Please do not hesitate to contact us to discuss the specific implications for your unique circumstances and explore strategic planning opportunities under the new bill.
