The controversy over the future of the cap on state and local tax deductions is gathering more steam from a group of constituents, including lawyers, who want to keep the pass-through entities exemptions in place to avoid penalizing accountants, doctors, and attorneys.
"Eliminating the SALT deduction for professional service pass-through businesses would also result in a major tax increase on many of those small businesses," said William R. Bay, president of the American Bar Association.
"Therefore, we urge you not to include the House- passed language in the Senate bill that would prevent professional service businesses from claiming the SALT deduction at the entity level."
The appeal is included in a
Thune and Schumer are the majority and minority Senate leaders while Crapo and Wyden are the chair and ranking member of the Senate Finance Committees respectively.
The deduction for state and local tax was capped in 2017. One year later, states began enacting workarounds known as pass-through entity exemptions.
The SALT cap remains unpopular in muni land as issuers see it as potentially restrictive of their ability to levy taxes to support bonds.
The PTEs allow business owners to take their income through their businesses which triggers a state tax credit which helps offset the cap.
Thirty-five states and New York City now have some type of PTE in place but the budget bill the House sent to the Senate would nullify them.
The American Institute of CPAs is voicing similar concerns to Senate Finance leadership.
"The House bill targets professionals simply based upon their chosen occupation," per
"We believe that this is discriminatory and unfair. At a time in which tax reform is focused on job creation and economic growth, this will have the opposite impact. In fact, an analysis by the Tax Foundation shows that the House bill language eliminating the deduction for SSTBs will reduce GDP by .2 percent."
The Tax Foundation also
Gaming out what happens to tax revenue for the federal government versus collections by the states will likely remain a fluid process, whatever Congress decides.
"Raising the SALT cap to $40,000 and eliminating PTE regimes would likely have little direct effect on the total amount of state and local tax revenue collected, but it would change the mechanics and timing of how taxes are paid, and credits are issued," said Lucy Dadayan, principal research associate, the Tax Policy Center.
"States would shift from collecting taxes at the entity level back to collecting more at the individual level, and taxpayers would rely less on PTE workarounds since they could deduct more state taxes directly."
Manipulating the SALT cap offers
"Every time Congress tweaks the rules, the states respond, which adds complexity and uncertainty," said Dadayan. "That instability can erode taxpayer confidence and make long-term planning harder for both governments and businesses."
