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OSCPA supports resident credit for SALT cap taxes paid to other states

Written on Jun 30, 2023

OSCPA staff report 

OSCPA on Tuesday testified in front of the Ohio House Ways & Means Committee in support of House Bill 200, which would permit Ohioans who are currently subject to double taxation to get back to a status quo position. 

“This legislation would authorize Ohio residents to claim a credit for income taxes paid to other states if the resident owns an interest in a pass-through entity that opts into the pass-through entity tax in the other state,” Adam Garn, JD, CPA, principal of state and local tax at Plante Moran, said in his testimony.  

H.B. 200 is sponsored by State Rep. Jamie Callender (R-Concord) and State Rep. Tom Young (R-Washington Twp.) and authorizes an Ohioan to utilize our resident credit (in existence since at least 1991) for PTE taxes paid to other states while requiring an add-back of taxes deducted from that individual’s federal adjusted gross income. Ohio continues to be one of the only states that authorizes a PTE tax (see the map of states), but does not allow a credit for taxes paid to another state

Senate Bill 246 (134th GA) authorized pass-through entity (PTE) owners to “elect” to file a new form IT 4738 and be subject to a new entity-level tax in response to the federal $10,000 SALT deduction cap limit placed on individuals, but it did not allow Ohio residents to take a credit for similar PTE taxes paid to another state.   

“In order to mitigate the federal income tax deduction impact to Ohio, House Bill 200 also proposes an add-back of the income taxes deducted from the individual’s federal adjusted gross income,” said Garn, who is also the chair of the OSCPA State & Local Tax Committee. “Correspondingly, the fiscal effect of the House Bill 200 provisions was determined to have likely minimal loss of personal income tax revenue in the Senate passed version of House Bill 33.” 

Garn stated that the add-back treatment is like current law if an Ohio resident is part of a composite tax return in another state.  Under the composite tax return filing, an entity pays income tax at the entity level but receives no federal income tax deduction.  The amount paid is treated as a distribution to the owner of the pass-through entity as part of the composite filing.   

As it stands now, H.B. 200 was also amended into House Bill 33 (Ohio’s biennial budget legislation for fiscal years 2024-2025).  The comparison document of the current tax policy provisions can be found here – this issue is TAXCD92. 

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