2023 Marcum Year-End Tax Guide

43 THE MARCUM YEAR-END TAX GUIDE 2023

A YEAR IN REVIEW: SALT TRENDS AND HIGHLIGHTS BY ZACARIAS QUEZADA, ZAKARIYA HUSSAIN, AND JEREMY KATZ

Navigating state and local taxes (SALT) has become increasingly more complex. The past year has seen considerable shifts as states search for a balanced formula that enhances revenues while also wooing investments. From modified tax rates to innovative workarounds for federal caps, 2023 witnessed several tax-related updates that businesses must be aware of. This review delves into the significant SALT changes across pivotal states, ensuring stakeholders remain updated, compliant, and poised for the future.

2023 STATE TAX RATE UPDATES The trend towards lower personal and corporate income tax rates has continued in 2023. The following ten states—Arkansas, Connecticut, Indiana, Kentucky, Michigan, Montana, Nebraska, North Dakota, Utah, and West Virginia—have enacted legislation reducing the personal or corporate income tax rates. Since 2021, twenty-six states have reduced their income tax rates between personal and corporate income tax. Federal SALT Cap Workaround – Elective Pass-Through Entity Taxes Since the introduction of the Federal SALT Cap with the Tax Cuts and Jobs Act of 2017, states have been looking for viable workarounds to provide their constituents with

meaningful relief from the increased tax burden associated with having a limitation on the deductibility of state and local taxes. As of the date of this publication, there are approximately thirty-six states that generally now provide for an elective pass-through entity tax regime whereby individual pass-through entity owners may shift the state income tax burden on their distributive share of income to the entity itself, given that business entities are generally not subject to the SALT cap. In 2023, the following states jumped on the bandwagon and followed the rising trend of adopting these elective pass-through entity tax regimes: Hawaii, Kentucky, Indiana, Iowa, Montana, and West Virginia.

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