Use Tax and Pass-through Entity Elective Tax Public Service Bulletin
June 16, 2022
Purpose of Bulletin
To remind the department that if a taxpayer includes use tax on their income tax return, payments and credits are applied to use tax first, then towards other taxes such as franchise or income tax, pass-through entity (PTE) elective tax, interest, or penalties.
Assembly Bill 150 passed in July 2021, allows partnerships and S corporations to pay an entity-level elective tax. With the PTE elective tax being new, the question of whether use tax was to be satisfied prior to PTE elective tax arose. When use tax and PTE elective tax are reflected on the return and all liabilities are not paid, payments received by the Franchise Tax Board (FTB) will be applied following the existing rules. Once use tax is satisfied, any remaining balance will be applied to franchise, income, or PTE elective tax.
Refer to 565 Booklet, 568 Booklet, or 100S Booklet