New legislation that would lift a cap on how much state and local (SALT) tax certain businesses can deduct on their federal returns is currently before the Senate Appropriations Committee.
The goal of the legislation – to provide tax parity to individual and small businesses – has assumed more urgency amid the COVID-19 economic downturn, Chris Smith, executive director of the Main Street Employers coalition, told the Northern California Record.
“We’re very encouraged by the progress that’s been made,” Smith said. “The governor mentioned it in his budget proposal, and I think there is recognition this needs to be done to benefit California. At least eleven other states have done it, and this would be a big benefit to California’s economic recovery. We support this being adopted as soon as possible.”
SALT reform would apply to income earned by S corporations, LLCs, and other pass-through businesses, which employ a substantial majority of California workers.
Connecticut in 2018 became the first state to adopt SALT parity legislation; New York became the most recent, on April 21. The other states are Alabama, Arkansas, Idaho, Louisiana, Maryland, New Jersey, Oklahoma, Rhode Island, and Wisconsin. More than a dozen other states are considering legislation, including SB 104, sponsored by state Sen. Mike McGuire, D-Healdsburg.
“It’s another way to get direct stimulus to struggling small businesses,” Smith said. “It would directly reduce their federal taxes; it’s an effective way to stimulate California businesses recovering from the impact of COVID.”
After the Senate Appropriations Committee unanimously approved SB 104 on April 19, the bill was referred to the Suspense File.
A coalition of 45 business groups sent a letter to the committee last month, expressing support for the measure.
“SB 104 restores the full SALT deduction to California’s pass-through businesses,” the letter states. “The bill is revenue neutral to the State of California, as the restored deduction reduces federal, not state, taxes owed.”
“It’s a matter of fundamental fairness,” Smith said. “Legislation like that which is being considered in California is an appropriate way to do it.”