HB2838 Summary

• Allows partnerships and S corporations to elect entity-level taxation at 4.5% on taxable income attributable to resident and nonresident partners/shareholders, effective for taxable years beginning after December 31, 2021.

• Partners and shareholders who are individuals, estates, or trusts have the right to opt out of the entity-level election with at least 60 days' notice from the partnership or S corporation.

• Partners and shareholders can claim a credit against Arizona income tax for their proportionate share of taxes paid by the partnership or S corporation under the entity-level election, with unused credits carried forward up to five consecutive taxable years.

• Requires partnerships and S corporations making the election to pay estimated taxes and adds the entity-level tax amount to partners' and shareholders' Arizona gross income to prevent double taxation benefits.

• Allows residents to claim credits for entity-level taxes paid to other states that are substantially similar to Arizona's new entity-level tax, capped at the amount that would have been taxed at the individual level.