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Wisconsin Adopts SALT Parity for S Corps

Dec 21, 2018

In response to concerns over the State and Local Tax deduction limits enacted as part of Federal tax reform, Wisconsin has become the second state to adopt legislation to restore the SALT deduction to pass-through businesses.  The bill (Wisconsin S.B. 883) will permit pass-through entities (PTEs) to elect to file a tax return and pay tax on income derived from business activities, in lieu of passing through the income to owners. This option will be available first to S corporations in tax years beginning on or after Jan. 1, 2018, and to all other PTEs in tax years beginning on or after Jan. 1, 2019.

There are now two states – Wisconsin and Connecticut – who have adopted SALT reforms.  In addition, Michigan is close to adopting a very similar reform measure and the Michigan Legislature is poised to send their reform bill to the Governor later this week. Looking at the legislation a little closer, the new law will permit persons holding more than 50 percent of the interests in a PTE classified as a partnership, and shareholders similarly in control of an S corporation, to consent to an election by the partnership or S corporation to be taxed at the entity level on net income reportable to Wisconsin. Because the entity would pay the tax, partners and shareholders would exclude from their own Wisconsin income their proportionate share of all items of income, gain, loss, or deduction otherwise passed through to them by the partnership or S corporation. In addition, the bill would make conforming amendments to the rules for claiming a credit against Wisconsin taxes for income taxes paid to other states so that the credit would be available to the partnership or S corporation paying the tax and not the partners or shareholders.

View the complete text of the bill »