Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
By Che Odom
Business groups are pushing a model state statute designed to preserve for owners of certain limited liability companies the ability to deduct taxes they pay to state and local governments on federal returns.
The organizations, Parity for Main Street Employers and the S Corporation Association, developed a model statute that is similar to legislation awaiting Connecticut Gov. Dannel Malloy’s (D) signature and being considered by lawmakers in New York, the groups told Blomberg Tax.
While the 2017 federal tax act ( Pub. L. No. 115-97) preserved the state and local tax deduction for C corporations, “it denied it to millions of businesses organized as pass-through entities because they pay those taxes at the owner level,” Chris Smith, executive director of Parity for Main Street Employers, told Bloomberg Tax.
Pass-through entities are those in which earnings and income tax liabilities pass through to their owners, whether they are individuals or other businesses.
Under the new federal tax law, only the first $10,000 of taxes paid by individuals to state and local governments are deductible on federal returns. Business entities may deduct the full cost of state and local taxes as business expenses.
The model legislation would shift the tax paid by pass-through businesses from their owners—such as the individual partners in a partnership—to the entity, thereby preserving the deduction.
Like the model act, the Connecticut bill ( S.B.11) would tax the net income of the pass-through business and provide an equal, offsetting individual income tax credit for the entity’s members or owners. Malloy is expected to sign the measure.
Connecticut should be applauded for the legislation, according to Brian Reardon, president of the S Corporation Association, which advocates on behalf of companies with that business organization.
His group is working with companies in New York, California, Michigan, and Wisconsin to push the model act, while still pressing for change at the federal level, he told Bloomberg Tax.
The model act also would recognize the value of similar credits paid by other states to pass-through owners.
To contact the reporter on this story: Che Odom in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Ryan C. Tuck at email@example.com
Copyright © 2018 Tax Management Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)