How is the Iowa Pass-Through Entity Tax (PTET) applied to the shareholder of B Bops?
B_Bops Franchise · 2025 FDDAnswer from 2025 FDD Document
of lowa.
In response to House File 352 the Company has elected to pay a newly imposed Iowa Pass-Through Entity Tax ("PTET") on behalf of the shareholder. This tax is assessed as 6.04% of the Company's Iowa-source S Corporation distributive items and is applied to reduce the shareholder's proportionate share of federal taxable income reportable on their personal income tax return. Accordingly, the shareholder recognizes a federal income tax benefit as if the shareholder's state income tax was fully deductible on the shareholder's personal federal income tax return. Since the income tax benefits associated with the PTET exclusively benefit the shareholder, the tax is recognized as a distribution to that shareholder. The shareholder's distributions include $7,596 representing that shareholder's share of the PTET paid on their behalf for the year ended December
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 52–53)
What This Means (2025 FDD)
According to B Bops's 2025 Franchise Disclosure Document, the company has elected to pay the Iowa Pass-Through Entity Tax (PTET) on behalf of its shareholder. This tax is calculated as 6.04% of the company's Iowa-source S Corporation distributive items. The tax is then applied to reduce the shareholder's proportionate share of federal taxable income, which is reported on their personal income tax return.
This arrangement allows the shareholder to recognize a federal income tax benefit, as if the state income tax was fully deductible on their personal federal income tax return. Because the income tax benefits from the PTET exclusively benefit the shareholder, the tax payment is treated as a distribution to the shareholder.
For the year ending December 31, 2024, the shareholder's distributions included $7,596, which represents the shareholder's share of the PTET paid on their behalf. This means that B Bops paid this amount of tax for the shareholder, and it was accounted for as a distribution to the shareholder for accounting purposes.