Your Help is Needed: Governor May Veto New Tax on Passthrough Businesses That Could Save $190 Million!

tax time
December 20, 2018

Legislation that creates a new tax on passthrough businesses to allow for full deductibility of state and local taxes (SALT) at the federal level, is headed to the Governor’s desk. This optional, new tax could save Michigan businesses $190 million in federal taxes. We need your help to urge the Governor to sign this important legislation. 

Passthrough businesses organized as S corporations, partnerships, and sole proprietorships are the cornerstone of the American economy.  Here in Michigan, they employ 56 percent of the workforce -- just short of two million Michigan residents get up every day and go to work at a passthrough business. 

Under federal tax reform, C corporations were allowed to continue deducting their full SALT’s from their federal liability.  Passthrough businesses residing in states that tax them directly, like New Hampshire, can still deduct all their SALT as well. In states like Michigan, however, where passthrough business profits are taxed at the owner level, those taxes are subject to the new, $10,000 cap on SALT deductions. This new policy is patently unfair and puts Michigan passthrough businesses at a disadvantage compared to C corps and other passthroughs operating in no-income tax states. 

Senate Bill 1170 would address this disparity and help level the playing field between pass-hrough businesses and C corporations. It includes two key provisions: First, it would allow Michigan passthrough businesses an annual election to pay their SALT at the entity level; and second, It would provide their owners with a tax credit to avoid double taxation. The bill would effectively restore the federal deductibility of SALT to Michigan family businesses. 

For information on how to contact the Governor, or for more information about this legislation, please contact Dan Papineau at dpapineau@michamber.com.