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March 18, 2019

Fighting For Tax Parity At The State Level

The S-Corp Association, which, along with the Metals Service Center Institute, supports parity in the federal tax code for businesses that pay taxes through both the corporate and individual tax system, recently released a memo that explains why states must pass legislation that allows pass-through companies the ability to take full advantage of the federal deduction for state and local taxes (SALT).

As the S-Corp Association notes here, C corporations are able to deduct all their SALT while individual pass-through business owners are subject to a $10,000 cap.

The association argues that states should pass model legislation, available here, that would shift the tax paid by pass-through businesses from the owner to the entity, thereby preserving the SALT deduction. The model legislation would:

  • Change the incidence of tax on pass-through business income from the owner to the entity, making those taxes deductible at the federal level;
  • Give those owners a credit for the taxes paid at the entity level; and
  • Recognize the value of similar credits paid by other states to pass-through owners.

Connecticut already has passed legislation that would stake these steps. According to the S-Corp Association, these changes would restore the deductibility of these taxes at no cost to the state.