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10/19/2021 10:19 AM
Pennsylvania House of Representatives
https://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20210&cosponId=35797
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House of Representatives
Session of 2021 - 2022 Regular Session

MEMORANDUM

Posted: June 4, 2021 09:48 AM
From: Representative Martina A. White
To: All House members
Subject: Optional Entity-Level SALT Cap Workaround
 
Enacted as part of a larger change to the Federal tax code in 2017, which included lowering individual tax rates and expanding the standard income tax deduction, the Tax Jobs and Jobs Act (TCJA) also imposed a limitation on the maximum deduction that a taxpayer may claim for certain state and local taxes, set at $10,000 beginning in tax year 2018 through 2025. Included in this deduction calculation are property taxes as well as state income tax or state sales tax, but not both.

While necessary to effectuate the changes of the TCJA, this limitation has presented challenges for taxpayers, and in particular, owners and shareholders of businesses structured as partnerships or a S-corporations. As many of you know, the income generated from the activities of these “pass through entities” are passed from the organization itself to the owners and shareholders who, in turn, pay the corresponding taxes on the income received. Whereas prior to the TCJA, there was no similar limitation and thus taxpayers could fully deduct via itemization the amount of state and local taxes paid for Federal income tax purposes, these taxpayers are no longer afforded this ability.

My legislation addresses this challenge by providing an option for Pennsylvania partnerships or S-corporations to be taxed on income generated at the entity-level rather than the existing pass-through methodology. If such an election is made, the partnership or S-corporation would become subject to our state Corporate Net Income Tax (CNIT), with the owners and shareholders in turn receiving a credit against state income tax liabilities equal to the amount of CNIT taxes paid by the business entity.

As of November 2020, seven states have passed legislation similar to this proposal, including our neighboring states of Maryland and New Jersey, and similar proposals have been introduced in many other states. I respectfully ask for your consideration to join me as a co-sponsor of this legislation and show our support of small businesses as we look to rebuild our state economy.



Introduced as HB1709