On June 21, 2021, Walter Calvert and Chris Moran Published “SALT Deduction Cap Workarounds Are Here to Stay” in Tax Notes State. The following is an excerpt:
The Tax Cuts and Jobs Act capped the itemized deduction for SALT at $10,000. To mitigate the SALT cap’s impact, several states – beginning with Connecticut on May 31, 2018 – adopted legislation imposing taxes directly on the income of PTEs, while allowing the PTE owners a corresponding credit on their personal income tax returns for the tax paid by the PTE. The underlying rationale for the PTE tax legislation was that state income taxes paid by the PTE would be deductible from the PTE’s income, thus reducing individual owners’ distributive shares of pass-through income for federal personal income tax purposes – effectively working around the SALT cap.