The Corporate Tax Pass Through Act will address Nebraska’s urgent need for competitiveness.

In announcing six priority bills on January 18 to reform Nebraska’s tax code, Governor Jim Pillen said, “Our current tax system cannot make Nebraska competitive.” In advocating these bills, Governor Pillan further stated on February 3 that Nebraska has “an urgent need” to remain competitive.

As explained below, amending one of these bills to add a voluntary retroactive corporate income tax pass-through or PTET law would address this urgent need and provide many Nebraska business owners with federal income tax relief. What’s more, the PTET law won’t cost the state any tax revenue—that’s right, zero reduction in the tax revenue that Nebraska collects.

For reference, the Tax Cuts and Jobs Act of 2017 generally limits the amount of state and local taxes that taxpayers can deduct from their federal income annually to $10,000. This constraint is commonly referred to as the “SALT constraint”. The SALT restriction hurt many Nebraska small and family business owners who pay more than $10,000 in property and state income taxes, weakening the benefits provided by the 2017 federal tax bill.

According to the Nebraska Department of Revenue, there are more than 59,000 tax returns for the 2019 tax year for so-called pass-through organizations (where income generated from a business passes to its owners, and the owner is then responsible for paying the corresponding income). taxes) were filed in Nebraska. Almost all of these companies, incorporated as subsection S corporations or partnerships for tax purposes, are small and family businesses. The SALT cap directly hits these Nebraskas, all too often resulting in higher federal income taxes.

To provide exemption from the SALT restriction, 29 states have enacted and seven more states have proposed PTET laws that allow pass-through entities to voluntarily choose to pay state income tax on behalf of their owners. These PTET laws, approved by the Internal Revenue Service, avoid the impact of the SALT cap by shifting tax from the business owner to the owner’s business, effectively creating deductible business expenses that are not affected by the SALT cap. In other words: The PTET Act will not affect the income tax Nebraska collects, but by providing a workaround for the SALT limit, it will create federal income tax savings for many Nebraska business owners.

The impact of PTET law will vary by company, but for many business owners, passing PTET law in Nebraska can cost anywhere from $29.60 to $37 in federal income tax savings for every $100 in Nebraska business income tax paid.

Failure to pass PTET law puts Nebraska business owners at a disadvantage. Today, Nebraska is one of only five states that levy an individual income tax and have yet to pass or propose a PTET law. Regionally, our neighbors Colorado (which passed a PTET law retroactive to 2018), Kansas, Iowa, and Missouri have passed or proposed PTET laws. South Dakota and Wyoming do not need PTET because they do not collect state personal income tax. In order to level the playing field for our business owners, Nebraska needs to pass PTET legislation quickly. As Governor Pillen remarked, “We all agree that we can’t beat Iowa, not even a chance.”

To meet Nebraska’s urgent need for competitiveness and provide tax breaks to many Nebraska business owners, the State of Nebraska should follow Colorado’s lead by enacting the PTET Act, which, like Colorado’s law, is applied retroactively, allowing business owners to realize these tax savings beyond 2023, but also for previous tax periods. Providing tax breaks like this would advance Governor Pillen’s program to “make our state’s tax system more competitive with other states” and “provide[ing] Nebraska residents with the tax breaks they need.”

Finally, the passage of PTET legislation makes even more sense given that it will not negatively impact income tax collection in Nebraska.

I urge our state senators to amend one of the many bills pending to add retroactive PTET legislation, and to urge Governor Pillen to sign the PTET retroactive assistance bill into law. The PTET Act is the kind of practical tax reform and relief that the people of Nebraska deserve, and we should expect our leaders to implement it.

Content Source

The Sarpy County – Latest News:
Omaha Local News || Nebraska State News || Crime and Safety News || National news || Tech News || Lifestyle News

Related Articles

Back to top button