Today over a hundred business groups released a joint letter in support of the Main Street Tax Certainty Act of 2019. Sponsored by Representatives Jason Smith (MO), Henry Cuellar (TX) and Senator Steve Daines (MT), this bipartisan legislation would make permanent the 20-percent pass-through deduction enacted as part of tax reform. All Main Street businesses are at risk of losing the deduction when it is scheduled to expire in 2026.
In addition to Parity for Main Street coalition members, the groups include the U.S. Chamber of Commerce, the National Federation of Independent Businesses, and the American Farm Bureau.
Raising taxes on Main Street was not the intent of Congress when they enacted tax reform, and it shouldn’t be our policy now. To avoid that bad outcome, Congress needs to make Section 199A permanent. As the support expressed by such a broad cross section of the American business community attests, the economic benefits of providing certainty to Main Street businesses would also be widespread.
Also posted today was a new “whiteboard” video designed by the Parity for Main Street Employer coalition to illustrate the impact and challenges from tax reform for pass-through businesses.
Analysis Paves Way for Other States to Act
The Parity for Main Street Employers coalition of national trade groups today released a new analysis by the Wisconsin-based law firm Meissner Tierney Fisher & Nichols highlighting the legal basis for state efforts to preserve the federal deduction for state and local taxes (SALT) for employers organized as pass-throughs.
To date, two states (Wisconsin and Connecticut) have adopted new laws that would effectively restore the federal deduction for SALT paid by businesses organized as S corporations and partnerships, while two other states (Arkansas and Oklahoma) are actively considering similar bills.
Recent news stories have cast doubt on these efforts by raising the specter of possible action by the IRS to invalidate the new laws. At issue is whether taxes paid by pass-through entities are subject to the new $10,000 deduction cap that applies to individual taxpayers.
The analysis released today addresses these concerns by making a strong legal case for the deductibility of the new entity-level tax enacted in Wisconsin. It summarizes:
State income taxes paid by S corporations and partnerships, limited liability companies and other entities… should not be subject to the new $10,000 state tax deduction limitation under section 164(b)(6) of the Internal Revenue Code…. The Internal Revenue Service (the “Service”) has consistently held that income and other taxes imposed upon and paid by pass-through entities are simply subtracted in calculating nonseparately computed income at the entity level, and are not separately passed through or incorporated into the various provisions and calculations applicable to itemized deductions at the individual level, such as the standard deduction, alternative minimum tax and the Pease reduction. In discussing the final provisions of the Tax Cuts and Jobs Act, the Conference Committee Report explicitly reiterated and relied upon this principle in describing the scope of new section 164(b)(6) of the Code.
While the analysis focuses on the new Wisconsin law, its findings are relevant to Connecticut and other states considering similar legislation.
Chris Smith, PMSE Executive Director
“A Section 199A deduction that applies broadly to Main Street Employers organized as passthroughs is essential to maintain parity with C corporations and the new 21-percent rate. While the final rules provide some additional clarity, the Treasury chose not to adopt recommendations of the Main Street community on important issues, including aggregation and de minimis rules.”
“The economic response to tax reform has been relatively muted in part because the tax relief targeted at pass-through businesses – who employ the majority of private sector workers — is complicated, limited, and temporary. This was a missed opportunity to simplify and broaden that relief.”
“To maximize tax reform’s impact, 199A should be amended to be broader, simpler, and permanent. We stand ready to work with Congress to provide the tax relief that Main Street employers and workers deserve.”
The Parity for Main Street Employers Coalition welcomes Treasury’s guidance applying the new 20% tax deduction to thousands of U.S. businesses organized as pass-throughs—the S-corps, sole proprietorships, and partnerships that comprise 95% of all businesses and who employ the majority of American workers.
Read the full statement by clicking here.
Click here for the full study.
The Parity for Main Street Employers coalition–representing more than one hundred national business groups and millions of Main Street employers–strongly supports efforts across the states to restore the ability of employers organized as pass-through businesses to deduct their State and Local income taxes (SALT) on their federal tax returns.
Click here to read more.
The Parity for Main Street Employers (PMSE) coalition released a new survey highlighting the pass-through business community’s initial reaction to the tax Cuts and Jobs Act (TCJA). Early results indicate that the tax relief promised to non-corporate employers is in danger absent clear guidance from IRS and Treasury. Key results include…
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As the Treasury Department and Internal Revenue Service drafts rules necessary to implement HR 1, the undersigned organizations request that you use your regulatory authority to adopt a reasonable method of calculating the new 20 percent pass-through deduction to ensure Main Street businesses are not penalized based on how they are organized for business purposes…
Read more here.
Today the Parity for Main Street Employers (PMSE) coalition, comprised of trade groups representing American Main Street businesses, named Chris Smith as its new Executive Director. Smith is a Washington public affairs veteran and a former Chief of Staff for both the U.S. Treasury Department and the House Ways and Means Committee…
Read more by clicking here.