The Tax Committee of the Minnesota Senate held a hearing today to discuss legislation (S.F. 263) to restore the full SALT deduction for pass-through businesses. If adopted, Minnesota would become the eighth state to enact our SALT Parity reform.

Among the hearing’s witnesses was S-Corp’s own Tom Nichols, President at Milwaukee-based law firm Meissner Tierney Fisher & Nichols and author of the SALT Parity legislation enacted in Wisconsin.  Tom also authored the legal analysis used to successfully defend our approach to Treasury. In other words, he’s an ideal spokesman for SALT Parity and its ability to level the playing field for pass-through businesses:

“C corporations got pretty beneficial treatment out of the Tax Cuts and Jobs Act…C corporations were entitled to fully deduct all of their state and local income taxes. For pass-through entities, that wasn’t the case…and with the $10,000 cap, state and local income taxes were effectively non-deductible. So, while you had rough parity between C corporations on one hand, and S corporations and partnerships on the other, before the Tax Cuts and Jobs Act, you now have a pretty dramatic difference.”

The Minnesota bill, introduced by State Senator Thomas Bakk, would level this disparate treatment by giving pass-through businesses the option of paying their taxes at the entity level. Shifting the tax’s incidence creates a deductible business expense. Even better, since the entity tax the same as the tax paid by the business’ owners, the approach is revenue neutral for the state.  It’s a win-win for Minnesota businesses and their state.

“[SALT Parity] should not cause much revenue loss, if any. I would think that it would be a slight revenue raiser…One of the reasons why it is important to have parity between pass-through entities and C corporations is, especially for closely-held businesses, a single-tax system works much, much better. A double-tax system…is highly disruptive for closely-held businesses.

“And you’re obviously in a competitive environment as a state…from a competitive advantage perspective, to ensure taxes don’t drive decision-making, it would make sense for Minnesota to be more in line with, for example, Wisconsin.”

As S-Corp and its allies made clear in a letter to committee Chair Carla Nelson, SALT Parity would help Minnesota Main Street businesses at a time when many of them have been hard hit by the COVID-19 pandemic while being revenue neutral to the state.  It’s a win-win for Minnesota businesses and their state.

The full hearing can be accessed here.