Amendments to the Income Tax Act reintroduced in the Michigan House of Representatives aim at increasing federal tax deductions for small business owners in the state.
House Bill 4288 was approved by the House Committee on Tax Policy on Wednesday.
If passed into law, the bill would amend current Michigan tax law governing S corporations, partnerships and LLCs – collectively called flow-through entities – to allow them to maximize state and local taxes (SALT) deductions on their federal tax returns.
Introduced by Rep. Mark Tisdel, R-Rochester Hills, who serves as majority vice chair of the House Committee on Tax Policy, HB 4288 is the latest iteration of a Senate Bill 1170, which was introduced in the 2017-18 legislative session but vetoed by then-Gov. Rick Snyder. Snyder said at the time the Senate bill was too complicated and potentially expensive to implement without lengthy debate.
The Senate bill included a $5 million appropriation, but HB 4288 does not include an appropriation. The House Fiscal Analysis Agency estimates the cost of implementing Tisdel’s bill between $8 million and $10 million.
“Small businesses are the backbone of our Michigan economy, and they deserve a tax code that works for them,” Tisdel said in a statement. “This plan will allow job providers to maximize savings on their federal taxes without reducing state revenue.”
A news release from Tisdel noted that, while larger C corporations file their taxes on business income on the entity level, flow-through entities file at the individual owner level.
SALT deductions for federal income taxes filed by S corporations have been capped at $10,000 since a 2017 change to the tax code. However, C corporation businesses are allowed an uncapped deduction.
Tisdel’s bill would allow S corporations to play a flow-through entity tax, which would create the opportunity for S corporations to become eligible for an unlimited SALT deduction on the federal level. State and local tax burdens would not change.
HB 4288 now advances to the full House of Representatives for consideration.
This article was originally posted on House Tax Policy Committee approves bill to increase SALT deductions for pass-through businesses