MSCPA Meets with MDOR and Legislators on ERC and PTE Guidance
MSCPA Meets with MDOR and Legislators on ERC and PTE Guidance
Pursuant to guidance released on July 28, 2022, members of the Taxation Committee met with the Mississippi Department of Revenue (MDOR) to get questions answered on the Employee Retention Credit (ERC) and the SALT Cap Workaround for Pass-Through Entities (PTE) legislation that passed during the 2022 session. MDOR’s responses are recapped below. Subsequently, members of the Taxation and Legislation Committees met with State Legislative leaders to discuss concerns regarding MDOR’s treatment of certain credits and penalties and avenues for relief. The meeting was productive, and MSCPA continues to pursue these matters as directed. More information will be relayed to members at a later date.
EMPLOYEE RETENTION CREDIT
MDOR confirmed that the correct treatment of the Employee Retention Tax Credit for Mississippi income tax purposes is as follows:
- The credits are considered taxable income in Mississippi because there is no applicable exemption allowed. The related payroll expenses which were not allowed to be deducted for Federal purposes may be deducted from Mississippi taxable income. For a C-Corp, the amount of the credits received should be reported on Form 83-122 (Net Taxable Income Schedule), line 7, Other additions. The excess payroll costs may be deducted on the same form on line 10, Wages reduced on federal return for federal employment tax credits.
- In addition to the Employee Retention Tax Credit, MDOR confirmed that the same treatment would apply to Families First Coronavirus Response Act (“FFCRA”) credits, Work Opportunity Tax Credits (“WOTC”), and any other federal tax credit not specifically exempted by the statutes.
- Regarding the timing of the income recognition, we were told that the income from the receipt of the credit refunds should be reported in the tax year that the refunds were received or accrued, depending on whether the taxpayer is reporting on a cash or accrual basis. MDOR cited Title 35.III.02.01.104 which states:
“In the case of a taxpayer reporting income on a cash basis, there should be included in gross income only actual and constructive receipts of income. Taxpayers reporting on the accrual basis must include in gross income amounts received by them or accrued to them.”
PASS-THROUGH ENTITIES
Based on questions received from members subsequent to the MDOR guidance issued July 28, 2022, the following notes were made during our meeting with MDOR. It is difficult to provide information that answers all questions especially when new legislation is still being reviewed and implemented. If you have other questions, please post them on our CONNECT Forum from our website, and we will direct them to MDOR or the Taxation Committee.
- The bill’s effective date is January 1, 2022.
- The pass-through entity tax return is due on before the 15th day of the 3rd month following the close of the taxable year.
- An extension filed by the entity extends the time to make the election.
- There are no limitations on the number of times an entity may elect in or out.
- Estimated tax payments due dates align with the corporate estimate schedule: 4/15, 6/15, 9/15, 12/15.
- An extension of time to make the election does not affect the underpayment penalties for quarterly estimated payments. Any electing PTE that receives a penalty notice for underestimate on 1Q and 2Q estimates should contact the MDOR for abatement.
- The amount of tax credit paid by the electing PTE is calculated using the corporate tax rates.
- Similar to the credit for taxes paid to other states, the PTE credit will be applied before any other tax payments, tax withholding, or refundable credits are applied.
- The credit is not refundable at the individual level and cannot be carried forward.
- An overpayment at the entity level can be carried forward or refunded.
- Each level of a multi-tiered entity can make the election.
- Election forms are not currently available; however, the election can be made on TAP.
- There does not seem to be perfect guidance on the issue of needing 50% approval, especially in light of how many partnerships operate. Other guidance to follow.