The 2017 Tax Cuts and Jobs Act (TCJA) set a $10,000 limit on a taxpayer’s deduction for state and local tax (SALT). Taxpayer advocates and many states have been working on workarounds to mitigate this limit.
In 2020, the IRS approved a strategy for pass-through entities (PTEs) to pay state income taxes at the entity level. The eligible partnerships and S-corporations can elect to pay the partners’, members’, and shareholders’ state taxes at the entity level, then allocate credits or income exclusions to the owners.
Many states have now passed their own versions of the PTE legislation. High income tax states such as California and New York quickly enacted PTE laws to remove the perceived inequity to taxpayers in their states created by the TCJA SALT cap.
The Kansas Society of Certified Public Accountants (KSCPA) reached out to AGH tax experts Shawn Sullivan and Jerry Capps, members of the KSCPA Advocacy Group, to draft a revenue-neutral bill for Kansas. The goals are to make sure income from PTEs is taxed the same as C-Corporations, maximize the SALT deduction for Kansas business owners, and bring Kansas in line with the 23 states that have passed PTE laws.
The current Kansas version will allow PTEs to elect in and pay taxes to Kansas at the entity level. The income being taxed would then be excluded from the business owner’s distributive share of the entity’s income. While amendments to the bill may affect the details, the core benefits of the bill will likely remain untouched.
AGH is proud to have drafted this legislation. This legislation will save Kansas business owners millions of tax dollars. We will continue to serve as our clients’ trusted advisors through tax compliance, tax planning, and advocating on their behalf.
If you have questions about how the drafted legislation may affect your situation, contact your AGH advisor, Jerry Capps, or Shawn Sullivan using the information below.
NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.
Senior Vice President
State & Local Tax Services
Jerry Capps and the State and Local Tax (SALT) team provide sophisticated state and local tax planning, strategic advice and advocacy to numerous mid-market, Fortune 100 and industry-leading companies. The team has returned many millions of dollars in one-time and recurring tax savings to companies.
In addition to planning and compliance, the SALT practice includes legislation and policy, litigation, and controversy matters involving income, franchise, sales and use and property taxes. Jerry's work involves critical questions on nexus, apportionment, the Multistate Tax Compact, and the equal protection, due process and commerce clauses of the United States Constitution. He is a respected advocate on issues of tax policy and he represents clients in all phases of state and local tax controversy, including audit assistance and administrative hearings. He also provides counsel on state and local income and transactional costs for mergers, acquisitions and corporate reorganizations.
Jerry is a member of the Institute for Professionals in Taxation, the Kansas Society of Certified Public Accountants, the American Bar Association and the Kansas Bar Association. He has been engaged as a keynote speaker for organizations such as the Institute for Professionals in Taxation, state and local CPA societies, university and professional accounting conferences, and chambers of commerce.
Executive Vice President
Shawn leads the firm’s tax group and serves on AGH’s board of directors. In addition to enhancing business performance to minimize tax consequences, he has extensive experience in mergers and acquisitions, international tax and business structuring. Shawn has public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, automotive, wholesale distribution, real estate development and construction industries.
A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.