Pass-through entity tax election.

(1)(a) Beginning January 1, 2028, a tax is imposed at a rate of 9.90 percent of the taxable income of an electing entity for each taxable year in which an election under this section is in effect.(b) The tax is paid by the electing entity.(2)(a) A pass-through entity may elect to be subject to the tax imposed under this section by filing an election with the department on or before the due date prescribed by the department for making such election, but no later than June 15th of the taxable year.(b) The election is made annually and is irrevocable for the taxable year once filed.(c) The election must be made by: (i) In the case of a partnership or limited liability company, any person authorized to sign the entity's return; and (ii) in the case of an S corporation, an officer authorized to sign the return.(d) An election may exclude owners who choose not to participate. At the time of election, the pass-through entity must identify the participating and nonparticipating owners.(3)(a) The taxable income of an electing entity consists of:(i) The entire distributive share of income, gain, loss, and deduction attributable to participating resident owners, regardless of source; and(ii) The state source distributive share of income, gain, loss, and deduction attributable to participating nonresident owners.(b) Taxable income is determined by applying all state specific additions, subtractions, and modifications that would apply to the owners individually.(c) Guaranteed payments, separately stated items, and investment income is included in taxable income to the same extent these items would be included in a participating owner's individual Washington base income under this chapter.(4)(a) An electing entity shall make estimated tax payments in the same manner and at the same times as required for individual estimated tax payments under RCW 82A.04.510.(b) Estimated tax payments are based on the electing entity's reasonable estimate of taxable income for the taxable year.(c) Estimated tax payments paid by the electing entity under this section are in lieu of the estimated tax payments imposed on owners under RCW 82A.04.510 with respect to the income included in the electing entity's taxable income.(d) Estimated tax payments are not required under this subsection before July 1, 2029.(5)(a) Each participating owner of an electing entity is allowed a credit against the tax imposed under this section equal to the owner's proportionate share of the tax paid by the electing entity under this chapter as provided in RCW 82A.04.140.(b) Participating resident owners shall include in their Washington base income their full distributive share of the electing entity's income, gains, losses, and deductions and shall claim the credit allowed under RCW 82A.04.140.(c) Participating nonresident owners shall include in their Washington base income their distributive share of the electing entity's income, gains, losses, and deductions as allocated and apportioned under RCW 82A.04.440 and shall claim the credit allowed under RCW 82A.04.140.(d) Participating part-year resident owners shall include in their Washington base income their distributive share of the electing entity's income, gains, losses, and deductions, and claim the credit allowed under RCW 82A.04.140, in the manner required under (a) and (b) of this subsection for the portion of the year in which the participating owner was a resident and nonresident, respectively.(6)(a) The electing entity shall file an annual return reporting taxable income, tax due, estimated payments, and any other information required by the department in a form and manner required by the department.(b) The department may adopt rules necessary to administer this section, which to the extent possible, must be consistent with the requirements under this chapter for individuals. The department may adopt rules to streamline and simplify the process and procedures for making an election under this section.(7) The definitions in this subsection apply throughout this section unless the context clearly requires otherwise.(a) "Distributive share" means the owner's share of income, gain, loss, or deduction as determined under the entity's governing documents and federal income tax law.(b) "Electing entity" means a pass-through entity that has made a valid election under subsection (2)(c) of this section.(c) "Nonresident owner" means an owner who is not a resident of this state for individual income tax purposes.(d) "Owner" means a partner, member, or shareholder of a pass-through entity.(e) "Resident owner" means an owner who is a resident of this state for individual income tax purposes.(f) "State source income" means income, gain, or loss derived from sources within this state, determined under the allocation and apportionment provisions of RCW 82A.04.440.[ 2026 c 238 s 502.]Notes:Findings—Intent—Effect of invalidation of 2026 c 238 s 201—Automatic expiration date and tax preference performance statement exemption—Necessity of act—Intent—Implementation by department of revenue—2026 c 238: See notes following RCW 82A.04.030.