June 6, 2022

Savings Expected to Grow as States Seek to Restore Deduction

Businesses in states that have enacted state and local tax (SALT) parity laws are likely saving more than $10 billion annually, new data from the S Corp Association and the Wall Street Journal shows.

So far, 27 states have enacted SALT parity laws in response to the $10,000 cap on business expenses for pass-through business owners that was imposed by the Tax Cuts and Jobs Act. The act put S corporations at a disadvantage because C corporations did not have a similar cap and have been able to fully deduct their SALT as a business expense. To overcome that advantage, the S Corp Association and Main Street Employers Coalition have been pushing states to pass laws that allow pass-through business to pay their SALT at the entity level, effectively restoring the deduction at the federal level without impacting state revenue.

Initially, the S Corp Association had estimated the laws would save pass-through businesses $6 billion a year if enacted in all 41 eligible states. However, the Wall Street Journal found that eligible businesses have already saved more than $10 billion in the 11 states where data was available. That amount is only likely to grow as states continue to adopt SALT parity laws.

As of June 2022, only eight states have not enacted or are not considering a SALT parity law, according to the Main Street Employers Coalition. Another 10 states either have no state income or pass-through entity tax and do not need a SALT parity law as a result.