The House Ways & Means Committee on April 5 heard sponsor testimony on a bill that creates a state-level solution for Ohio taxpayers to the current $10,000 state and local tax (SALT) limitation at the federal level.
Senate Bill 246 is an OSCPA legislative priority that passed the full Senate unanimously on March 16. The Society plans to testify in support of S.B. 246 at the next House Ways & Means Committee hearing, likely during the last week of April.
At the first hearing this week, Sens. George Lang, R-West Chester, and Michael Rulli, R-Salem, presented sponsor testimony.
“In 2017, the Tax Cuts and Jobs Act imposed a $10,000 cap on the amount of state and local taxes (or SALT) that Ohio taxpayers can deduct off their federal returns,” Lang said. “This cap also applies to the income earned by Ohio pass-thru businesses set-up as S corporations, partnerships and LLCs.”
He said because of this cap, Ohio small businesses are subject to higher tax rates, which could hurt their bottom line and put them at a disadvantage to businesses organized as C corporations and those operating in states without an income tax. The bill sponsors testified they want to re-establish state and local tax parity, and thereby allow Ohio businesses to remain competitive in relation to other businesses throughout the country.
S.B. 246 authorizes an owner to claim a refundable credit against the owner’s Ohio income tax liability equal to the owner’s proportionate share of the tax paid by the PTE.
As a result of a change in IRS Notice 2020-75, states are permitted to enact legislation to clarify that taxes paid by a PTE do not count towards an owner’s $10,000 cap limitation on the state and local tax deduction for federal income tax purposes. To date, 24 states have enacted legislation and six (including Ohio) have bills pending. See the map of states with pending or enacted legislation.