SALT Parity State of Play
SALT Parity State of Play
Adoption of the Working Families Tax Cuts Act last July was a huge win for Main Street – a win that included locking in $20 billion of annual savings through our SALT Parity efforts. With the SALT cap now permanent, those parity laws enacted in 36 states are more important than ever.
Just as important – making sure the benefits are broad and stay in place. That means making certain that states and other jurisdictions don’t game the policy, that the laws are working as they should, and that we complete the map. Here’s the state of play on those three fronts:
State Games
Massachusetts has a PTET election, but it pairs the election with a 10 percent haircut of the state’s PTET tax credit. That haircut effectively diverts tax benefits from pass-throughs (and the federal taxpayer) to the Massachusetts state coffers. Not good.
Now the new Mayor of New York City is proposing to do the same with the NYC PTET credit, only on a whole new level. Under the proposal, New York City businesses would see their tax credit – which exists alongside the statewide credit – reduced from 100 cents on the dollar to 75 cents, a change the Mayor’s office estimates would raise around $700 million. That’s a massive tax hike, and one that would hit eligible businesses of all sizes, not just “the wealthy.”
Fortunately, Mamdani cannot accomplish this unilaterally, since modifying the credit requires Albany’s approval. But there’s a deeper concern with the precedent being set. Massachusetts showed states they can erode SALT Parity by quietly pocketing a slice of the benefit, creating a template others may be tempted to follow.
Sunsets & Fixes
Our SALT Parity bills include three key components – an election to pay at the entity level, offsetting credits or income exclusions to avoid a double tax, and a recognition of the credits or income exclusions offered by other states.
Beyond that common core, every Parity bill is different, reflecting the unique nature of each state’s tax code and the preferences of its legislators. We attempted to summarize those differences in this table.
One key difference is that a handful of states sunset their Parity laws to coincide with the original 2026 expiration of the federal SALT cap. S-Corp advised against those sunsets, as the election can be beneficial even without the SALT cap, but we didn’t always prevail. By our count, six states sunset their laws. Here’s the latest on those states:
- California (2026): As part of its 2025-26 budget, extended its SALT Parity law through 2030.
- Illinois (2026): Its SALT Parity law was made permanent thanks to legislation passed in December of last year.
- Virginia (2026): Last year’s budget bill extended the expiring provision, but only for one year (through 2026). The state will need to take up the issue again this year.
- Oregon: SB 1510 – which extends the state’s “PTE-E” program – was approved by the legislature and currently awaits the Governor’s signature.
- Minnesota (2026): Legislation (HF 3127 / SF 3405) would revive the state’s defunct (expired at the end of 2025) SALT Parity regime through 2029. The bill enjoys bipartisan support, but remains stalled in the House due to larger divisions.
- Utah: No legislation introduced yet to reinstate the expired provision
Completing the Map
Finally, not every eligible state has enacted their SALT Parity reform. Maine, Vermont, North Dakota, Delaware, and Pennsylvania are the last holdouts, leaving pass-through businesses in those states at a real competitive disadvantage – a disadvantage that’s increasingly hard to justify as the reform effort has matured. Two notable developments in those states:
- Pennsylvania: SB 659 was introduced last session and its sponsor, Senator Mastriano, has committed to reintroducing it this year.
- Maine: LD 191 was introduced last year and remains pending.
So some movement, but really a remarkable lack of alacrity for enacting a policy that puts money in the pockets of local businesses without costing the sponsoring state anything. Meanwhile, nothing is happening in the remaining states. Apparently, pass-through businesses in Vermont (21 thousand), Delaware (45 thousand) and North Dakota (30 thousand) just don’t count.
Conclusion
So that’s the latest on the SALT Parity front. We’ll continue working with lawmakers in the holdout states to enact additional SALT Parity bills while also working to ensure existing regimes remain intact and operate as intended. With the federal framework now settled, it’s time to finish the map, block attempts to hijack the policy, and lock in this relief for good.
Washington Post vs. Washington State
Over the weekend, the Washington Post offered a welcome dose of clarity in the debate over who really bears the burden of higher taxes. As the Board put it:
Taxing ‘the rich’ would affect most private-sector workers, who are employed by pass-throughs but are not rich themselves. Jacking up taxes on small employers isn’t going to help make the American economy fairer or more competitive.
This is a big issue that we touched on just last week. S&P 500 companies employ roughly 18 percent of the U.S. workforce, while privately-owned firms employ nearly 80 percent.
Most of those businesses are organized as pass-throughs that pay tax at the individual rates on their business income. You can say you’re taxing the rich, but really you’re just taxing the job creator down the street.
So welcome, the Washington Post, to the fight for Main Street!
Washington State, meanwhile, is moving in the opposite direction. Long a home for business-friendly tax policies, the state appears to be racing to see if it can outpace California, New York, and New Jersey for the title of the worst place in the country to do business.
What are they up to? Check out this laundry list of punitive tax hikes the state has embraced in just the last couple of years:
- The state just increased its estate tax rate to the highest in the country. Washington’s estate tax exemption, meanwhile, is far below the federal threshold, so some solidly upper-middle income taxpayers will now be subject to very high estate tax rates. For those residents who do trip the federal thresholds, their combined marginal estate tax rate is also the highest in the country at up to 75 percent.
- The state also has a newly minted capital gains tax, which starts at 7 percent and jumps to 9.9 percent for gains over $1 million. The Washington State Supreme Court in 2023 ruled the tax was constitutional, clearing the way for it to go into effect at the start of last year. At 9.9 percent, Washington state only trails California, New Jersey, and New York for the highest rate in the nation.
- The state expanded its tax on investment income in other ways. The state’s Department of Revenue and Supreme Court joined forces to overturn a long-standing exemption of investment income from the state’s gross receipts (B&O) tax. The 2024 decision, Antio, LLC v. Department of Revenue, results in a new tax on investment income originating in Washington state. In 2025, the state legislature both increased the B&O tax rate and codified the court decision.
- The state also expanded its already high sales taxes to include many online services and products.
- Finally, Olympia is eyeing a “millionaires tax” – a 9.9 percent levy on individual income above $1 million annually. The state Senate passed the measure in February and the Governor has expressed support. While it faces near-certain legal challenges – the Washington Supreme Court barred graduated income taxes in 1933 and voters passed an initiative in 2024 prohibiting personal income taxes – the Antio decision suggests the court will view this challenge creatively too. The new tax is expected to pass and survive any legal challenge.
This just in – Jeff Bezos is now a resident of Florida.
Seriously, view this onslaught from the business owner’s perspective. You already pay the existing gross receipts tax, only now at a higher rate. You have to collect the newly expanded sales tax from your customers. You have to pay federal income taxes (lower, thanks to the Working Families Tax Cuts), but now those likely include a new 9.9 percent state tax. If you sell the business, you’ll pay a combined capital gains tax of around 35 percent. And when you die, the state and federal governments will seize up to three-fourths of whatever you have left. Here’s the local FOX affiliate on the challenge:
Business owner Nikhil Singhal is calling it quits over the state’s new $9 billion tax package passed earlier this year by lawmakers in Olympia. “The math simply doesn’t add up for us to continue doing this business,” Om Spark owner Nikhil Singhal said…. Singhal says the latest increase in taxes is hitting him in several different new ways, including an increase in the business and occupation tax and an expansion of the retail sales tax that now captures online digital ads.
As noted above, these sorts of policies don’t just affect business owners, they hurt workers too. More from Fox:
Back in October, FOX 13 spoke with Josh Dirks, who shut down Project Bionic in Seattle’s Ballard neighborhood. Dirks was forced to lay off his staff at his social media digital ad agency after 16 years in business. He says the latest tax increase was the last straw and he could not keep his business viable.
So as the Boss warned us, it’s one step up and two steps back. The Washington Post has newly embraced Main Street and the practical benefits of reasonable tax policies, while Washington state has lost its collective mind and is telling the family business community to pack up and leave, you’re not wanted here.
Spoiler alert – that’s exactly what they’re going to do.
The Economy Beyond Wall Street
If you follow financial news, you could be forgiven for thinking the American economy begins and ends with Nvidia, Apple, and a handful of other S&P 500 giants.
But a recent analysis from Apollo’s Torsten Slok offers a useful reminder that those companies represent a much smaller slice of the actual economy than their coverage suggests. The numbers, instead, point straight to Main Street.
Slok’s data shows that S&P 500 companies employ roughly 18 percent of the total US workforce and account for about 21 percent of all capital investment in the economy. Privately owned firms, by contrast, drive nearly 80 percent of job openings and represent 81 percent of companies with revenues over $100 million. That’s the economy most Americans live and work in:
The distinction between private and public company employment has geographic implications as well. Our EY study on job location shows that while most public company jobs are located in city centers and the coasts, the jobs offered by Main Street enterprises are more evenly distributed across the country, forming the economic base for thousands of local communities and towns in every state. c
The importance of Main Street businesses to investment and jobs is a point S-Corp has been making for years, and it goes a long way toward explaining why policies like 199A permanence and SALT Parity have been our top priorities. The businesses that depend on these policies are the ones doing the bulk of the hiring, investing, and growing across the American economy.
On the other hand, while Slok entitled this report “Public Markets are a shrinking part of the US economy,” it’s clear somebody forgot to tell Wall Street that. Despite Main Street’s importance to investment and jobs, roughly half of U.S. corporate profits are earned by the S&P 500. That is a remarkable concentration of earnings power, and it’s reflected in the market capitalization of US publicly traded companies relative to GDP. That ratio has nearly tripled since the 2008 financial crisis and is now well above 200 percent:
So what’s driving the disconnect between the economic dominance of Main Street and this massive capital diversion to Wall Street?
Our take is these elevated valuations are the result of a structural tilt toward public companies. As we’ve noted in the past, most public company shareholders pay little or no tax, resulting in a double benefit to those businesses. They have access to cheaper capital on the public markets, and they pay lower taxes on the returns they get from the investment that cheap capital finances.
It’s one more reason rate parity underpins our advocacy efforts.
Slok is right that public markets get more attention than their share of the economy warrants. The businesses responsible for most employment, investment, and economic activity operate largely outside the spotlight, but that doesn’t mean policymakers should ignore them too. Keeping their tax and regulatory environment competitive is how you keep the American economy running.
Supporting Main Street Startups
Congressman Vern Buchanan (R-FL) has reintroduced the American Innovation Act (H.R. 1778), which seeks to modernize and expand the tax treatment of start-up costs for new businesses.
Under current law, entrepreneurs can deduct just $5,000 in start-up expenses in their first year of operation, with the benefit phasing out once expenses exceed $50,000. The Buchanan bill would increase that deduction to $20,000 and raise the phase-out threshold to $120,000. It also clarifies eligibility for partnerships and S corporations, ensuring the vast majority of new businesses structured as pass-throughs can fully benefit.
As S Corporation Association President Brian Reardon noted:
Nearly all job creation in the US comes from start-ups. Without them, millions of Americans would struggle to find work. The American Innovation Act encourages entrepreneurship and job creation by reducing the costs of starting a business. It’s an essential part of our economy, and the S Corporation Association supports it.
Congressman Buchanan framed the effort in similar terms:
Entrepreneurship is at the heart of the American Dream. During National Entrepreneurship Week, we should be focused on removing barriers for the job creators who drive the American economy. My American Innovation Act cuts taxes on start-up costs so small businesses can reinvest in their companies, hire workers and strengthen their local communities.
More than half of new small businesses fail within five years, while roughly the same number begin with less than $25,000 in capital. In an environment where access to capital (particularly at early stages) is absolutely critical, modernizing a decades-old start-up deduction is overdue.
S-CORP is proud to support the American Innovation Act and will continue working with Congress to ensure that tax policy reflects the realities facing America’s entrepreneurs and the pass-through businesses that power our economy.
The More Tariffs Change, the More They Stay the Same
Tariffs are a little outside our wheelhouse, but last week’s Supreme Court decision striking down the IEEPA tariffs has broader implications for the tax policy landscape. Here are some thoughts.
First, as we noted the last time tariffs were on the front page, striking down the IEEPA tariffs doesn’t really change the landscape for the next few years. As Bruce Mehlman posted over the weekend, the President has many options when it comes to tariffs, and has made clear he plans to use them:
Second, the decision is unlikely to affect revenue collections. Secretary Bessent made clear the Administration plans to continue tariffs under different authorities, resulting in “virtually unchanged tariff revenue for 2026.”
Third, revenues might be steady, but the rates paid by specific industries and countries will likely change. As noted by The Budget Lab, effective tariff rates will drop from around 14 percent to 8 percent under the court decision, but that’s before any replacement tariffs are imposed. So Brazil is no longer looking at 40-percent, country-specific rates under IEEPA, but its exports will likely be hit with the 10-15 percent replacement tariffs Trump referenced last week:
Fourth, it’s unclear whether the struck-down tariffs – amounting to about $130 billion – will need to be refunded, or exactly how that would work. Our helpful Search Assist informed us that “Yes, the Supreme Court’s ruling suggests that the tariffs may need to be refunded, but the process for obtaining those refunds is expected to be lengthy and complicated. Importers will likely have to navigate through various legal channels to recover the funds.” Sounds about right.
Fifth, there’s talk the court ruling may encourage Congress to take up another big tax bill this year. Congressional leaders have been contemplating a package for months and some observers suggest the ongoing tariff drama may increase the chances they move forward. That seems unlikely. There’s no consensus on whether a second tax bill is advisable and there’s simply no agreement on what a legislated tariff fix would look like. Congress might do a tax bill, but it won’t be driven by tariffs.
So the more things change, the more they stay the same. Some level of increased tariffs will continue, despite the court decision. Those steady-state tariffs are nowhere near the levels of the original “reciprocal” tariffs and their ultimate cost needs to be netted out by whatever progress the Administration makes in trade negotiations and other initiatives. Meanwhile, Congress may take up a tax bill later this year but, unless something dramatic happens, using it as a vehicle to resolve the tariff question is highly unlikely.