Ohio Bill Allows Pass-Through Entity Deduction

Ohio pass-through entities, now have a way around the $10,000 limit on the deductibility of state and local taxes set by the Tax Cuts and Jobs Act of 2017. Under Ohio’s SB 246, pass-through entities can choose to be taxed at the “entity level,” at 5 percent of 2022 taxable business income, then at 3 percent, the current rate, in subsequent years.

Some of the provisions of the legislation for entities choosing the SALT cap workaround:

  • Refundable tax credits will be available to the entity’s owners equal to their proportionate share of the tax.
  • Entities must elect the entity level tax separately and irrevocably each tax year.
  • Entities paying the entity tax are not subject to current Ohio withholding requirements.

The bill, which was passed unanimously in the Ohio Senate in March, passed by a vote of 88 to 2 in the House on June 1. With its enactment, Ohio joins more than two dozen other states that have voted in legislation to provide a workaround of the SALT deduction cap. Proponents of the legislation in Ohio had argued that the cap left Ohio businesses less competitive with companies in states where workaround legislation had been passed.

For more information on how rulings and legislation related to state and local taxes might impact your business, contact us at hbksalt@hbkcpa.com or visit our website at https://hbkcpa.com/client-services/tax/state-and-local-tax-consulting/

About the Author(s)
Bryan M. Holm, CPA, MST, Manager, State and Local Tax Bryan Holm is a Manager in the Cherry Hill, NJ office of HBK CPA's and Consultants. He joined the firm in 2021 as a member of the HBK State and Local Tax (SALT) team. His background includes work with top 10 accounting firms. Prior to specializing in state and local taxation, Bryan worked in tax resolution for the Internal Revenue Service. He has served clients in a variety of industries including private equity firms, manufacturing, the restaurant industry, retail, construction, and the banking industry. Bryan has provided a variety of state and local tax services to clients, including; Audit Defense, Refund Reviews, Nexus Reviews, Voluntary Disclosure Agreements, Income/Franchise Tax Compliance, M&A Due Diligence, and SALT Consulting and Advisory Services. Bryan has also been a speaker and writer on state and local tax matters.
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